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How to 

Invest Money 

Wisely 



HOW TO INVEST 
MONEY WISELY 



BY 

JOHN MOODY 

AUTHOR, " HOW TO ANALYZE RAILROAD REPORTS," "THE ART OF 

WALL STREET INVESTING," " MOODY'S ANALYSES OF 

RAILROAD INVESTMENTS." EDITOR, MOODY'S 

MAGAZINE, ETC. 



FIRST EDITION 



PUBLISHED BY 

OFFICE OF JOHN MOODY 
35 Nassau Street, - New York City 

19 12 



fyS 



*<* *V\ 



Copyright, 1912, by 

JOHN MOODY 
All Rights Reserved 



©CI.A328793 v Yv 






PREFACE 

In the following chapters the proper methods for 
investing money in standard securities are outlined and 
discussed. An attempt has been made to treat this im- 
portant subject in a practical and concrete way. and thus 
enable the investor to feel that he is getting something 
more than a mere statement of principles. The great 
weakness with most books on investment subjects is that 
they generalize too much, without presenting practical 
suggestions for the investor to adopt. 

The whole plan of this little book is based on the 
ideas of Diversified Investing which the writer has for 
many years been making a careful study of in his work 
as an analyst and adviser for bankers, financial institu- 
tions and individual investors both at home and abroad. 
These principles for wisely and intelligently investing 
money under diversified plans have within the past few 
years been adopted by numerous institutions and several 
thousand individual investors with satisfaction and profit. 

It will of course be recognized that within the lim- 
ited scope of a small volume of this kind, the subject 
can be covered only in outline. But it is hoped that 

5 



those who read this book with care will desire to have 
the subject further elucidated, with the idea of applying 
the method of investment themselves. For all such as 
these, our large statistical and analytical organization is 
operated, further details regarding which will be fur- 
nished upon request. 

John Moody. 

35 Nassau Street, New York. 



Note.— In the back pages of this book will be found a de- 
tailed description of our Investment Service. 



TABLE OF CONTENTS 

Part One: Diversifying En VESTMENT J PAGES 

I. Selection of Investments 11 

II. Mistaken Investment Methods 17 

III. Unsound Theories g] 

IV. Proper Principles for Diversifying Investments... 25 
V. Applying the Principles 

VI. Further Application of Sound Principles A[) 

VII. The Factor of Maturity in Bonds 49 

Part Two: Investing for Profit: 

VIII. Taking Advantage of Potential Possibilities 59 

IX. Investment Cycles 67 

X. Distribution and Profit Combined 75 

XI. Plans for Investment of Moderate Sums 81 

XII. Plans for Investing Larger Sums 87 

Part Three: Classes of Investments: 

XIII. Some Typical Industrial Bonds 99 

XIV. Selected Public Utility Bonds 109 

XV. Railroad Stocks as Investments L2fl 

XVI. Guaranteed Railroad Stocks as Investments 

XVII. Industrial Preferred Stocks as Investments 145 

XVIII. Unlisted Industrial Preferred Stocks 155 

XIX. Public Utility Preferred Stocks as Investments... 157 

XX. Short Term Investments 163 

XXI. Investing in Convertible Bonds 167 

Alphabetical Index *74 

7 



PART ONE 
DIVERSIFYING INVESTMENTS 



Selection of Investments 

THE sound principle for properly distributing invest- 
ment capital has been a puzzle to investors for 
many years. This is not only true of the person 
whose investment capital is small and limited to a few- 
thousand dollars, but it is just as fully the case with the 
large investor whose capital runs up into the millions. 
As a general thing those who desire to have their prin- 
cipal thoroughly safe have endeavored to confine them- 
selves to the higher grade bond issues of railroads and 
municipalities, and in some cases have made an effort at 
distribution by spreading their investments over wide sec- 
tions of the country and among a considerable number of 
different issues. But in spite of this effort at distribution, 
such investors usually find themselves facing losses in 
principal even in periods of prosperity when they nat- 
urally would expect profits on this principal. In fact, the 
method employed by such investors has often resulted in 
permanently impairing their capital rather than adding 
it. Many cases can be poinded out where an investment 
fund of $500,000 has been reduced from ten to twenty 
per cent in the short period of ten years and this lias hap- 

(ii) 



12 How to Invest Money Wisely 



pened when no undue risks have been taken and no 
ordinary speculation whatever has been indulged in. Of 
course, where an investor attempts to add to his income 
by investing a part of his principal in speculative stocks 
or bonds, the dangers of loss under certain conditions 
seem apparent enough. But when his entire effort has 
been directed to the conservation of his principal and he 
has consistently avoided investment in any stocks or 
bonds of a doubtful or speculative nature, it seems on 
the surface quite surprising that such losses should be 
incurred. 

But when we turn to the small investor whose capital 
is limited in amount, and whose securities are usually con- 
fined to only two or three issues, we find that the danger 
of loss in principal is even far greater. I have known of 
many instances where an investor with a capital of from 
two to five thousand dollars, after exerting the greatest 
possible care in placing his money safely and avoiding 
every kind of a speculative proposition, has found himself 
at the end of two or three years with a loss of from 
twenty to forty per cent and with no possibility of recov- 
ering this loss except by taking unreasonable risks. 

The kind of advice which is generally regarded as the 
most conservative for the investor who does not wish to 
risk his principal is the following: "Think first of your 
capital and pay no attention to the amount of interest 
return until the intrinsic value back of the investment has 
been thoroughly demonstrated. Confine your invest- 
ments to first mortgages in railroads or other successful 
undertakings which have back of them a heavy earning 



Selection of Investments 13 

power and on which the interest has been earned for a 
long series of years at least three or four times over. ( )r, 
select municipal bonds which arc hacked by the credit of 
prosperous American cities and about which there is no 
doubt whatever of a permanent maintenance of high 
credit." 

Now suppose an investor with a capital of $20,000 
acted on the foregoing advice in the year 1902 and put 
half of his principal into Lake Shore & Michigan 
Southern Railroad 3y 2 % bonds and the other half into 
Xew York City 4% bonds. In the year 1902 lie would 
have found that among railroad bonds there was nothing 
which stood higher than Lake Shore 3j4s. These bonds 
answered the test of security to the fullest extent. They 
had back of them an enormous equity in railroad property 
with great earning power, and for a long series of y< 
the earnings had been sufficient to cover the interest on 
the bonds at least half a dozen times over. The issue was 
of such high standing that it became a savings bank- 
investment in New York and other Eastern states, and in 
every sense of the word was practically as secure as a 
government bond. 

As for Xew York City 4% bonds, nothing of higher 
type could have been selected in the municipal field. The 
credit of Xew York City was unsurpassed and the general 
strength of its obligation- seemed quite equal in security 
to those of the United State- I lovernment 

But where would this investor find himself today had 
he followed this advice ten years ago?' In the ca^e of the 
railroad bonds, he would find that his principal had de- 



14 How to Invest Money Wisely 

predated more than twenty per cent. In the year 1902 
the Lake Shore 3y 2 s sold steadily between 110 and 112. 
In the latter part of 1912 they were quoted at 86 and 
during this entire period of ten years they had been quite 
steadily declining from the high figures at the beginning 
of the decade. 

The record of the New York City bonds is somewhat 
similar. In this case the investor would find that over 
ten per cent of his principal had gone forever. These 
bonds sold steadily well above 110 in 1902, but today are 
quoted considerably below par. 

In both of these cases the equity or strength back of 
the principal of these issues has been fully maintained 
during the past ten years. The earning power of the Lake 
Shore & Michigan Southern Railroad has greatly in- 
creased since 1902 and the margin of safety on the 3y2% 
bonds has grown almost every year. The standing and 
credit of New York City has also been maintained and 
the assessed valuation of property is enormously greater 
today than ever before. 

But in spite of these facts the investor who had put 
$20,000 into these securities in 1902 would find himself 
today with his capital contracted to less than $17,500 with 
no apparent hope of being able to get this loss back 
within his lifetime. While it is true that a part of the 
loss on a bond like the Lake Shore Zy 2 s will finally be 
recovered eighty years hence, when the bonds mature, yet 
at no time during the man's life would he be able to turn 
this investment into cash without accepting a very large 
part of this loss. 



Selection of Investments 15 

It will thus be seen that the principle outlined for the 
safe investment of capital, as mentioned above, does not 
work out in practice. In fact, any sound method for the 
safe investment of funds must he planned on entirely 
different lines from that which is ordinarily stated. 



II 

Mistaken Investment Methods 

IT has often been said that it is far easier to make 
money than to save it. Thousands of invests 
large and small, will attest to the truth of this 
axiom. For show me an investor, who, without spe- 
cial and expert experience, can safely and intelligently 
invest $50,000 or $100,000, and keep it safely and intelli- 
gently, invested, on a basis to yield normal rates of return, 
and not jeopardize his principal, and I will show you a 
hundred who are in constant danger of losing or seriously 
risking at least a part of both interest and principal. And 
in saying this I do not refer to the speculator, nor even 
to the "semi-investor" who seeks "a little more than the 
average return," but exclusively to the man, woman or 
institution who may be well satisfied with genuine safety 
of principal, combined with an interest yield of from 4% 
to 6% on the invested capital. 

As I intimated in the first chapter, one of the causes of 
investment loss is the adherence to some crude principle 
in investing money, which, while sound enough in its 
does not go far enough to offset the many pitfalls which 
confront the average person who wishes to set his m< 
actively at work in good securities. The most conspicu- 

(17) 



18 How to Invest Money Wisely 

ous of those investment principles which I would desig- 
nate as "crude" is that one which is based on the theory 
that only "high grade or first mortgage bonds, legal for 
savings banks," and a few high grade stocks of equal se- 
curity, so far as principal is concerned, should be included 
in a sound investment scheme. 

To show the unsoundness of this bare theory if taken 
by itself alone (and it is so taken in thousands of cases), 
I present on page 19 a concrete example of the ordinary 
method of "conservative" investment, as applied to a 
capital sum of about $100,000. The assumed date of this 
investment is 1902, ten years ago. I show the cost of 
the bonds selected at that time, the yield on the cost, the 
low value in 1907, the high value in 1909, and the value 
in the month of May, 1912. 

The investment scheme here presented is confined entirely 
to "high grade" railroad issues, most of them savings 
banks investments, and all recommended in the strongest 
terms as "seasoned" issues. As far as security of prin- 
cipal is concerned, nothing could be better; there are 
enormous assets back of every one of the issues, and at 
the end of the decade, these assets were in every case 
much greater than at the beginning. And further than 
this, the sum is distributed in very small lots, showing an 
attempt at diversification. And yet, as the example 
shows, the outcome has been most unsatisfactory to the 
investor. Not only has the yield been low from the 
start (disregarding amortization, which would make it 
very much lower), but the holder has actually suffered 
a heavy loss in present capital value. At the low prices 



Mistaken Investment Methods 



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20 How to Invest Money Wisely 

of 1907 (the panic year) his principal showed a deprecia- 
tion of $16,600 or 18% ; at the high prices of 1909 (the 
best seen since the panic) he still had a loss of $5,450 or 
over 5 1 / 2 ( /o ) while at present prices he has a loss of 
$11,350, or 11^%. 

The truth is that the theory on which this man invested 
his money is not only inadequate for modern times, but 
unscientific and unsound. He supposed that in spreading 
his principal among many companies, in small lots, and 
diversifying it to all parts of the country, he was spread- 
ing his risk and keeping his eggs out of one basket. But 
as a matter of fact, all his eggs were in one basket and 
that basket was tied to one string, and is still so tied. 
He might just as well have put all his capital into one 
bond issue of the high grade seasoned class; the result 
would have been essentially the same. 

In future chapters I shall attempt to point out some of 
the real principles which should be adopted in a safe and 
sane investment program. 



Ill 

Unsound Theories 

AS pointed out on the previous pages, the theory of 
investment followed in the example shown is not 
only inadequate for modern times, but unscien- 
tific and unsound. With the rapid and unusual changes 
in business enterprise and industry during the past 
quarter century the field for investment has not only 
broadened vastly, but has become immeasurably compli- 
cated. Where, in 1885, there were but few fields in which 
the careful investor could safely place his funds, with 
only half a dozen types of high class security issues, to- 
day there are many dozens of such. In those earlier days, 
money could be invested with safety, and on a satisfac- 
tory basis of yield (outside of real estate mortgages), 
only in Government issues of the United States, carefully 
selected bonds of States, Cities and Towns, and still more 
carefully selected issues of steam railroads. But nowa- 
days, not only has the field for government, municipal and 
railroad issues vastly broadened, but entirely new fields 
for safe and profitable investment have come into exist- 
ence. The change of manufacturing enterprise into cor- 
porate forms, and the consolidation into vast units of 
industrial undertakings of every type has enlarged the 

(21 ) 



22 How to Invest Money Wisely 

investment field within recent years to the extent of prob- 
ably ten billions of dollars in this one direction alone. 
The development of electrical power and light, with the 
growth and expansion of the great public utility under- 
takings of the country, has also broadened the field enor- 
mously in which capital can safely be set to work without 
danger to either principal or yield. The growth and ex- 
pansion in the use of the telephone; the opening up of 
natural resources; the increases in the possibilities of 
water power and water supply ; the growth in commercial 
use of gas and oil ; the increases in population which have 
steadily raised the values of utilities in our cities; — all 
have opened new avenues for the safe investment of cap- 
ital which were not dreamed of a generation ago. And 
within the past ten years, the trend toward consolidation 
of retail businesses in many lines, including the remarka- 
ble growth of the mail order business, has brought into 
existence a new class of security issues of safety and 
promise. Furthermore, the steady increase of wealth 
throughout the American continent has constantly con- 
tributed to enlarged size and stability for institutions en- 
gaged in the business of banking and insurance, and many 
stocks of National and State banks, trust companies, safe 
deposit and insurance organizations have, within recent 
years, come to be classed among strong and desirable 
investment issues. 

It is probably largely because of the very multiplicity 
of these investment possibilities that the problem of safe 
selection of investments has become so difficult in modern 
times. No one but he who has made a careful study, 



Unsound Theories 23 



not merely of particular investments, but also of general 
business conditions, can be regarded as qualified to select 
the best issues with entire assurance of safety. For the 
pitfalls are many and dangerous; and while, among all 
the classes of enterprise referred to above, money can 
be discriminatingly placed, the fact remains that danger 
stalks in every direction for the person who has not the 
facts at hand or who does not possess the experience t«> 
pick the wheat from the chaff. Thus, while one can safely 
select bond issues secured on trolley lines which are, for 
all practical purposes, "as good as gold," he can also lose 
his money by buying worthless trolley bonds or stocks. 
He can select "seasoned" railroad issues, and he can lose 
his money with great ease in this same field. lie can buy 
industrial investments which will pay him handsomely ; 
but he also has full opportunity to lose his all in this same 
type of security. If he goes in for bank or trust company 
stocks, he may fare well or he may do worse than any- 
where else; and he can also find plenty of weak or bad 
municipal bonds as well as good ones. 

Because of the existence of so many pitfalls, many in- 
vestors adhere to the theory that it is still the wisest plan 
to stick exclusively to the few old line investments, such 
as municipals, governments, and the underlying bonds of 
railroads, and not attempt to go into the new and less 
mature investment fields. But against this theory stands 
the undeniable fact that the investor must attempt t<> 
conserve his full principal and at the same time get at 
least a fair return on his capital. Unless he he a very 
rich man, he cannot afford to allow all hi- capital n> he 



24 How to Invest Money Wisely 

concentrated in government issues, yielding 2 to 3 per 
cent, nor in high grade municipal bonds, which will 
return him but little more. If he selects a large propor- 
tion of underlying railroad bonds in order to bring his 
income up to a moderately higher plane, he cannot hope 
to secure an average yield of over 3% to 4% per cent in 
any event. 

But there is a still stronger reason than this why he 
cannot afford to concentrate his capital entirely in securi- 
ty issues of this type. Such bonds, whether they be gov- 
ernments, municipals or railroads, often prove, when held 
over long periods of time, very unsatisfactory invest- 
ments indeed. As I pointed out in the first chapter, he 
who bought New York City bonds five or six years ago, 
finds himself in a very unenviable position with his hold- 
ings today. If he had bought English consols, French 
rentes, or the bonds of any strong government or strong 
municipality on this or any other continent, he would 
have fared the same. If he had selected underlying rail- 
road bonds, with enormous equities and vast earning ca- 
pacities back of them, he would have done no better . Ten 
years ago, English consols would have cost him 98; to- 
day the same bonds are selling at 74 ; Illinois Central 3s, 
in 1899, sold at 96; now they are quoted at 75. No 
matter how carefully he had selected issues of this type a 
few years ago, he would today be facing a serious de- 
preciation in the value of his capital. 



IV 
Proper Principles for Diversifying Investments 

IN recent chapters I have been pointing out the mis- 
taken ideas regarding proper investment distribu- 
tion, which so many investors have followed to their 
sorrow in modern times. I shall now submit some 
constructive suggestions regarding scientific investment 
distribution and try to lay down some fundamental prin- 
ciples which all investors should recognize when placing 
their capital in bond and stock issues. 

There is a distinct divisional line running across the 
entire field of corporate investments. This line of de- 
markation does not follow any superficial division such 
as we find distinguishes a stock issue from a bond obliga- 
tion. A bond per se, is not always necessarily any better 
than a stock ; nor is it sometimes as secure as a stock. 
Many stock issues are far superior in strength and value 
to many bond issues, and the mere fact that the bond is a 
mortgage, and that the holder thereof is legally entitled 
to a fixed return on the mortgage, will not of itself ne. 
sarily put him in a position of better security than that 
occupied by one who holds common stock in a corpora- 
tion or railroad which is not a mortgage and which has 
no prior claim on income. This is simply another way 

(25) 



26 How to Invest Money Wisely 

of saying that, after all, the real element back of the 
average security is the earning power or income produc- 
ing capacity of the property. A first mortgage on a rail- 
road which is earning little or no money is not in any 
sense so desirable as a common stock on a railroad or 
industrial corporation which is earning and paying a good 
dividend on that stock. 

The relative position of different securities in relation 
to earning power, results in dividing them into two great 
classes. These two classes are briefly defined as follows : 

1. Securities, the investment values of which are be- 
yond or above the influences of fluctuating earning power; 
and 

2. Securities, the values of which are almost exclu- 
sively affected by changes in earning power. 

Among the former are such issues as underlying bonds 
of railroad systems on which, over a long period of years 
the interest has been earned many times over, and back 
of which there are vast equities which are of such size 
that no possible doubt could arise regarding the practi- 
cally complete security of the issue. Such are many of 
the bond issues secured on the Pennsylvania, the Illinois 
Central, the Chicago & Northwestern, the Burlington, the 
Lake Shore, etc. Preferred stock issues of some rail- 
roads are also to be regarded as in this class, although 
this does not generally hold true. Guaranteed stocks 
also are in many cases in the same general class as high 
grade seasoned bonds and the higher grade preferred 
stocks. Guaranteed issues like Morris & Essex stock, 
New York, Lackawanna & Western stock, and Pitts- 



Proper Principles for Diversifying Investments Ti 

burg, Fort Wayne & Chicago stock, arc all issues of this 
type. 

The primary factor affecting the prices oi this first 
class of securities is the money market. The price i 
bond like the Lake Shore first 3 l / 2 s or the Illinois Cen 
tral 3V 2 s is not materially (if at all) affected by the 
changing results from year to year in the income of th 
properties. The price of Northern Pacific fir>t 4s is not 
so affected. These properties might double their earn- 
ings within a given time and this fact would have no ap 
preciable effect on the prices of these bonds. The same 
thing is true of the Union Pacific first 4s, the Pennsylva- 
nia Railroad underlying issues, or the underlying bonds 
or strongly guaranteed issues of the Delaware & Hudson, 
the Reading or the New York Central. Consequently, if 
the investor confines his selections to high grade issues 
of this type he need give little concern to changes and 
fluctuations in earning power. It will not hurt him if 
earnings on his particular property fall off quite radically ; 
and conversely, it will not help him if earning- rise very 
rapidly. Even should his particular property come upon 
evil days and default on some of its junior obligations his 
position will be practically the same. In the year 1908 
the Erie Railroad failed to earn the interest on its junior 
bond issues and came perilously near a receivership, but 
the underlying bonds on the system, such as the old Eric 
Railway 4s and 5s, secured by first lien on the main line, 
were not affected in value or price by this condition of 
things. In fact, they were selling at better pi 
the company was so near bankruptcy, than they were two 



28 How to Invest Money Wisely 



years before, when the road was reporting a large sur- 
plus and paying a dividend on its first preferred stock. 
The reason for this was that, no matter what may have 
happened to the Erie system, the equity back of these 
particular issues was so heavy that troubles could never 
reach them. The Erie might have been reorganized in a 
very drastic fashion, and yet these mortgages could not 
have been disturbed. Consequently, they are in the first 
class mentioned above, and depend for their value, not on 
specific factors affecting the earnings or financial condi- 
tion of the Erie Railroad, but on the general money rate 
factor almost exclusively. 

To take a more extreme case. The Wheeling & Lake 
Erie Railroad has been in receivers' hands for several 
years, but the Lake Erie division bonds of this company 
sold higher in 1909 than in 1908 and have never declined 
in response to the fact that the company went bankrupt. 

The true line of demarkation between "high grade" 
issues, so called, and those of any other "grade" is the 
one we have indicated. The phraseology on the instru- 
ment has its place and meaning, of course; but no legal 
lore or high sounding phrases can give a bond value if 
its position in the income results of the property is not 
secure. If a given railroad is earning an average of 
$5,000 per mile net, and a bond issue on the property has 
the first claim on that income, the immediate question will 
be, how much of that $5,000 per mile is required to meet 
the interest on the issue? If $4,000 per mile is so re- 
quired, then the bond is in no sense "high grade ;" for a 
20 per cent decline in net receipts would wipe out all the 



Proper Principles* for Diversifying Investments 89 

margin of safety. But if the amount required for interest 
is $400 per mile or less and the net earnings are $4,000 
per mile, then the bond is removed entirely beyond the 
influence of changing earnings, and even a 50 per cent 
fall in net receipts would not jeopardize its position to 
any great extent. In fact, the road would have to go 
through an almost unheard-of period of bad results to 
affect the value of this issue. 

But sufficient has been said to indicate that any sound 
and rational distribution of investment funds must cover 
a broader field than that of the merely "high grade is- 
sues," so called. In brief, it should include not merely 
issues which are primarily responsive to the current rates 
for money and credit, but also such issues as are more di- 
rectly responsive to earning power. The latter type of 
securities can easily be included in a sound selection of 
investments without going into the field of speculation. 
It is not necessary for a man to buy speculative bonds or 
non-dividend-paying and doubtful dividend-paying stocks 
to get the benefit of improving earning power and grow- 
ing equities in railroads and other properties, which trans- 
pire over reasonable lengths of time. But it is necessary 
that he should invest to some extent in the types of se- 
curities which have a potential interest in the expansion 
of the property. If he buys an ordinary bond he has a 
limited interest only ; if the bond is thoroughly seasoned 
and he has paid the prevailing rate for it, then there is 
no chance whatever of future benefit from expansion in 
values of the property; if the bond is low grade and 
not yet secure, then he is merely speculating. If, how- 



30 How to Invest Money Wisely 

ever, he can make careful selections of securities which 
participate in some way in increasing earnings, either di- 
rectly or indirectly, then as the business and profits of 
the company grow, the value of his investment and the 
income on it will also grow. If he purchases, at the 
proper periods, stocks of railroads like the Illinois Cen- 
tral or the Pennsylvania, which have long records for 
steady payment of dividends, he may be able to put him- 
self in a stronger position to meet changing conditions in 
industry and in the money market, than if he confines 
himself to bond issues alone. It is just as reasonable 
that intelligent selections of high grade stocks can be 
made as high grade bonds. It would not have been wise 
for an investor seeking security of principal and per- 
manency of income to have bought Missouri Pacific stock 
or Toledo, St. Louis & Western preferred in 1908, 
merely because they were dividend payers and looked 
"cheap," but there would have been no mistake at that 
time in buying Louisville & Nashville, Norfolk & West- 
ern or Southern Pacific stocks. While such stocks as 
the latter fluctuate to considerable extent and rise too 
high during periods of speculation, they have back 
of them enormous equities and growing earning power, 
and as this earning power improves from decade to 
decade, the equities and income of such stocks improve 
in logical ratio. 

The same principle applies to the selection of bond is- 
sues which are convertible into stocks. For example, 
should the Norfolk & Western Railway increase its net 
income during the next ten years in even half as great a 



Proper Principles for Diversifying Investments 3] 

ratio as it has during the past ten years, the common 
stock of the road will probably be paying a much higher 
dividend than it now pays and might he selling where 
Louisville & Nashville now does. In such a case the C 
vertible 4 per cent bonds would sell in the same neij 
borhood as the stock, and before they were retired or 
called the holder could at any time convert into the st< 
and get the benefit of increased income. If, on the other 
hand, the system should fail to increase it- earning power, 
the bond would maintain its original value a- a fixed 4 
per cent investment. 

Of course, in throwing out these suggestion^, 1 have 
not forgotten that many other factors enter into the in- 
vestment problem just as soon as we go outside the fi 
of the issues which respond to the money market exclu- 
sively. And here it is that the question of selection come- 
in in the strongest way. Every convertible bond is not 
to be classed as desirable for investment purposes, and 
very few common stocks are. 

One of the vital matters to be borne in mind i- that of 
location of the company in which the investor places his 
funds. Thus, even in confining himself to railroad is 
sues alone, the investor should give due regard to the g 
graphical location of the different roads. Many rail 
road systems are primarily dependent upon special types 
of industry for their success. Thus, roads like the 
Xorfolk & Western, Chesapeake & I Ihio, Kanawha 
Michigan and Hocking Valley are to a preponderant 
extent dependent upon conditions in the soft coal in 
try for their stability and profits; others, ^uch 



32 How to Invest Money Wisely 

as St. Paul, Rock Island, Northern Pacific and Burling- 
ton depend to large extent upon agricultural conditions 
in the West; still others, like New Haven, New York 
Central, Lackawanna, Long Island, and Philadelphia, 
Baltimore & Washington rely largely upon passenger 
business; while roads operating in the Southern states 
depend upon industrial conditions in that section for their 
earnings and dividends. 

A full discussion, however, of the question of invest- 
ment distribution takes us entirely outside of the railroad 
field. This is touched upon in the following pages. 



Applying the Principles 

BEARING in mind the two primary price Factors 
already referred to, we are now in a position to 
discuss a more specific classification of inv< 
ments. For while all bonds and stocks respond to either 
the general price of money or credit, whether they are 
governments, municipals, railroad issues, public utility 
issues or other, or to more specific influences as revealed 
by earning power, yet the different types of undertakings 
cannot be measured by the same method of analysis. Iu 
other words, earning power of certain industrials may be 
affected by far different things than earning power of 
railroads; the income of public utilities may be affected 
by influences distinct from both those affecting railro 
and industrials; while the credit back of other iss 
such as municipals and governments, must always require 
an analysis of its own. 

Without going into too extended a discussion of the 
subject, we will begin by enumerating the several typ< 
corporate and other security investments which are g 
erally marketable in the United States. They can 
classified as follows : 

( 33 ) 



34 How to Invest Money Wisely 

1. Government and Municipal Issues: 

a. United States and foreign government bonds ; 

b. State obligations; 

c. City and town obligations; 

d. County bonds; 

2. Railroad Securities: 

a. Railroad bonds; 

b. Railroad guaranteed stocks; 

c. Preferred stocks ; 

d. Common stocks ; 

3. Public Utility Securities : 

a. Gas and electric light bonds and stocks; 

b. Traction bonds and stocks; 

c. Water works and water power bonds; 

d. Telegraph and telephone bonds and stocks ; 

4. Industrial Securities: 

a. Industrial bonds; 

b. Industrial preferred stocks; 

c. Industrial common stocks; 

5. Banking and Financial Institutions; 

a. National bank stocks; 

b. State bank stocks; 

c. Trust company stocks; 

d. Title, guaranty, insurance stocks, etc.; 

6. Real Estate and Land Investments : 

a. Building concerns ; 

b. Urban real estate issues; 

c. Agricultural loans, farm mortgages, etc.; 

d. Irrigation and developing companies. 

Included in the above classification are practically all 
the American corporation security investments worthy 
of the name. In each of the classes there are many is- 



Applying the Principles 



sues which respond exclusively to the prevailing rate for 
money, and are so well secured as to be immune from 
changes in trade conditions, ordinary political events, de- 
pressions, etc. But there are also in each class a vast 
number of issues which do, to more or less degree, re- 
spond to specific influences which are characteristic of 
their class alone. 

For example, take government and municipal issues. 
A large majority of municipal bonds in the United States 
are on a high investment plane; they arc so well pro- 
tected by legislative enactment that only changes in the 
money rate and the general price for capital will affect 
their values. But this is not true in all cases, and there 
are many instances which can be named where municipal 
securities have defaulted or have depreciated greatly in 
price, as a result of over-expansion of municipal debts. 
land booms, etc. And in the field of government issues 
we have instances enough in very recent years of great 
changes in value resulting from specific influences. A 
decade ago, the bonds of the Russian government were 
being offered in New York at very high figures, while 
those of Japan went begging. But today Japanese bonds 
sell far higher and Russian bonds far lower than at that 
time. Mexican bonds a generation ago could not fine! 
any market in New York, but nowadays they are held 
by a large class of careful investors. Political changes 
have brought these things about, and thus, in judging 
securities of this particular type, the political factor is the 
most important thing to take into consideration. And 
when we consider the investment position of United 



36 How to Invest Money Wisely 

States bonds, the legislative factor is of course the prime 
one. United States bonds do not sell twenty points 
higher than British consols because the credit of this 
country is better than that of Great Britain, but simply 
because our National Bank Act requires that these bonds 
be used for bank circulation. This law gives them a 
high value, which would at once be lost should the law 
be repealed. Left by themselves, United States bonds 
would respond to the general interest rate, or money-rate 
factor, just as British consols or French rentes do. 

In the railroad field, we have already discussed, in a 
brief way, the factors which influence the prices of or- 
dinary stocks and bonds. The earning power of the prop- 
erty is the primary influence here, and a study of this 
earning power leads us, of course, into a complete an- 
alysis of the properties themselves, their past record, 
their present management, the location of the roads, their 
alliances, the character of their tonnage, efficiency of 
operation, etc. Of course, political factors have their in- 
fluence with the railroads, just as crop conditions have, 
but the management of the business is the first thing to 
be considered. 

In industrial securities there are various questions, 
which affect different types of undertakings in different 
degrees. Industrial concerns are of so many different 
types, that no general fixed rule for ascertaining values 
can be applied here as completely as in the case of the 
railroads. Character of management is of first impor- 
tance ; type of business is equally important. Past records, 
advantages over possible competitors, such as the posses- 



Applying the Principles 

sion of raw materials, control over markets, protection 
by means of tariffs and other forms of monopoly, are the 
things to take into consideration. As in all other c 
the political factor comes in here for due consideration. 

Public utility securities are. in a sense, in a da-- 1>\ 
themselves. Unlike the railroad field, we do not first turn 
to earnings when examining a public utility enterpri 
The main thing which interests us is the franchise. 
Knowing the nature of that, we then examine the location 
of the property, the population growth, the geographical 
advantages which may bear on future growth, etc. But 
we also consider very carefully the political side ; for a 
franchise, even when exclusive, may not in time be such 
a valuable thing after all. Taxation can squeeze the value 
out of a franchise if public sentiment so decrees. 

Securities of banking and financial institutions in mod- 
ern times have opened a wide field for investment. The 
records of growth in this line of business in the United 
States during the past twenty years are simply marvelous. 
When passing upon securities of this type, we of course 
consider the location, character of management, | 
record, general financial strength, alliances with other 
interests, etc. 

Real estate and land investments are in a class by them- 
selves, and in this field the pitfalls for the real investor 
are even more numerous than in other lines. Urban real 
estate loans carefully selected are among the v t of 

investments, while farm mortgages, unless -elected with 
unusual care, are among the most dangerous. The lal 
can also be -aid of irrigation and development | i 



38 How to Invest Money Wisely 

It will be realized when this very broad field of invest- 
ment is considered, that it offers wide scope for diversifi- 
cation. It also requires the greatest possible care and 
study in the matter of selection. But when proper prin- 
ciples are followed in the matters of distribution and 
selection, the reward is well worth the trouble. If an in- 
vestor confines, his capital entirely to one class, such as 
railroad issues, even though he carefully distributes his 
risks and selects different types of bonds or stocks within 
this field, he may find that after all, especially during 
periods of panic or depression, his average values have 
declined, and his income has been cut down. But if he 
uses equal care, and also selects issues in one of the other 
fields, he will be surprised to find that after all his prin- 
cipal has been kept intact and his income maintained. 
To illustrate this take the panic period of 1907 and 1908. 
The man who held only railroad issues saw the earnings 
of all his properties drop perpendicularly, and the quota- 
tions on his stocks and bonds dropped with them. But 
if a portion of his principal had been in good public 
utility bonds, carefully selected, he would have been in a 
much stronger position. As the records show, while steam 
railroad earnings dropped frightfully during that period, 
the earnings of all the best public utility enterprises actu- 
ally increased. American Telephone & Telegraph re- 
ported the best results of its history during 1908; many 
lighting and gas companies in the centers of population 
did the same. The panic had no adverse effect whatever 
on their operations. 

Having briefly outlined the main principles of proper 



Applying the Principles 39 



investment distribution, I append below an example of 

how such principles might be applied in a limited way, to 

a fund of $100,000. Even when applied in this incom- 
plete way, the investor limits the risk to a very large de- 
gree, while putting himself in position to receive the 
benefit to some extent in the growth in value of equities : 

Group I. Railroad Issues — a. Bonds. 

Price. Cost. 

$5,000 Atchison Trans-Short Line 4s at 94 $4, Too 

5,000 Illinois Cent, refunding 4s at 96 4,800 

5,000 Lake Shore 4s at 93 4,650 

5,000 Reading-Jer. Cent. 4s at 98 4,900 

b. Stocks. 

5,000 Pennsylvania R. R. stock at L22 6,100 

5,000 Norfolk & Western stock at 107 5,360 

5,000 Kansas City Southern preferred at 60 3,000 

Group II. Industrial Issues — a. Bonds. 

$5,000 Armour Real Est. Ay 2 s at 91 $4,600 

5,000 du Pont Powder ± l / 2 s at 85 4.1250 

5,000 Vir-Car. Chem. 5s at 100 5,000 

b. Stocks. 

5,000 Amer. Sugar preferred at 120 6,000 

5,000 Inter. Harvester preferred at 120 6,000 

Group III. Public Utilities — a. Bonds. 

$5,000 Amer. Tel. & Tel. conv. 4s at 110 $5,500 

5,000 X. V. Gas, El. Lgt. & Power 4s at 88 4,400 

5,000 Minn. Gen. Electric 5s at 100 5,000 

b. Stocks. 

5,000 Laclede Gas stock at 105 5,250 

5,000 Amer. Light & Traction pfd at 105 5,250 

Group IV. Municipals. 

$5,000 New York City 4^s of 1917 or I960 at L03 65,150 

5,000 Denver City 5s of 1919 at 102 5,100 

5,000 Chicago City 4s at LOO 4,000 

(Prices arc those of May, L919.) 



40 How to Invest Money Wisely 

The above scheme of investment embraces many ele- 
ments of strength and relatively few weaknesses. It will 
be noted that the distribution over the different groups 
is broad; about 35% being confined to railroad stocks and 
bonds, about 25% to industrial issues, about 25% to pub- 
lic utilities and about 15% to municipals. The subdivi- 
sions are also carefully worked out. In the railroad group 
due regard is given to location as well as to the type of 
the security itself. Thus, the seven issues included have 
their own distinct elements of strength, and are broadly 
distributed. One is located in the far West, being de- 
pendent upon conditions in that section ; another is se- 
cured on a standard property in the Central States (Illi- 
nois Central); a third on the great Vanderbilt lines; 
another on the anthracite coal industry ; another on a soft 
coal road; another on the Pennsylvania system, and an- 
other on a road extending from Kansas City to the Gulf. 
No broader distribution, confined to the borders of the 
United States, could be made, as far as railroad issues 
are concerned. 

In the Industrial Group every security suggested is in- 
dependently based on distinct industries, located in par- 
ticular parts of the country, and responsive in large de- 
gree to distinct conditions. The same facts apply to the 
Public Utilities suggested, while the municipal sugges- 
tions are distributed between the East and the West. 

The advantages of an investment arrangement of this 
kind are not confined to the question of security of prin- 
cipal alone. While the fund is so distributed that the 
average value of the principal should be preserved in 



Applying the Principles 41 

good and bad times, and where the higher class bond issue 
may tend to decline, increasing earnings will cause the 
stock issues to rise, and vice versa, the distribution takes 
into account the yield on the money also. The above list 
would represent a market cost at the present time of 
nearly 8100,000 on which the net average yield would be 
about 5%. Had the fund been placed exclusively in rail- 
road or municipal issues, no greater assurance oi the in- 
tegrity of the principal could have been secured, and the 
yield would probably not average over 4j4%. Compare 
this arrangement with the list of "high-grade" railroad 
bonds presented in Chapter II., showing a yield of less 
than 4%. 

Another advantageous feature in the above exhibit is 
that the issues are all listed and have a ready market. 



VI 
Further Application of Sound Principles 

I HAVE already emphasized the disadvantages of in- 
vesting all one's capital in long term "high-grade** 
railroad issues. These comments may bring forth 
some criticism, many people saying that if a bond is 
absolutely secure and there is no doubt of the principal 
ultimately being paid, then it matters not what the market 
value of that bond may be at any time prior to maturity. 

But in most cases it matters a great deal. Of course, 
if an institution, such as a savings bank, buys bonds 
with the positive intention of holding them until they 
mature, it need not be disturbed about temporary decline- 
in market value; but not so the average investor. I will 
ask any investor who reads this book, if he is altogether 
satisfied with his investment, made ten years ago, in Illi- 
nois Central 4s, then selling at 114^, and now selling at 
100. If he is, then all I can say is that he is a very pecu- 
liar person. I know that I would not be satisfied. 

Another point that has been raised is that while some 
high-grade bonds have declined during the past ten years 
from the abnormally high prices of 1902, yet all have not, 
and it is therefore claimed that there is no reason to 

nne that this tendency towards lower market pri 
will continue during the decade to come. 

(43) 



44 How to Invest Money Wisely 

Of course, all high-grade bonds have not declined. 
Those issues of comparatively short maturity, which in 
1902 were selling in the neighborhood of their par value 
and below, have not declined. And they should not de- 
cline, because their redemption day is not far off. Take 
Baltimore and Ohio prior lien 3^s. In 1902 they sold 
at an average price of about 91 J^ ; now the same bonds 
sell at 93. They were high-grade ten years ago ; they are 
high-grade now. But during the decade the approaching 
maturity has been an increasing factor in steading their 
market price, and in spite of the world wide tendency for 
issues of much longer maturity to decline, these Baltimore 
and Ohio 3^2 s have advanced. They are likely to con- 
tinue their advance quite steadily during the next thirteen 
years, until they mature at par in 1925. Thus, for a 3^2 
per cent "prime" railroad issue, there is probably little 
better than Baltimore and Ohio 2>y 2 s. 

in time, but not during the present decade, nor for a 
long time after, issues like C. B. & Q. Zy 2 s, New York 
Central 3j^s, Lake Shore 3^2 s, etc., will begin to respond 
to the same special influence, and the day will surely come 
when these bonds will be most desirable investment pur- 
chases. But the fact must not be overlooked that before 
that day arrives, most of us will have been a long time 
dead. 

While high-grade bonds of short maturity, bearing low 
rates of interest, are usually most attractive investments, 
those bearing higher rates do not look so attractive. A 
man buys a 6 per cent bond, maturing in ten or twelve 
years, and pays 115 for it. At this price the yield, as- 



Further Application of Sound Principles 15 

suming that the bond will be paid off at par, would be 
about 4^4 per cent per annum. The investor must re- 
member that the premium of 15 per cent which he has 
paid, will never come back to him. and that lie must de- 
duct it from the interest he receives from year to year. 
But this is, at best, a most unsatisfactory situation, and 
the average investor will find it much more desirable to 
have a 4 per cent bond at a price below par, and yielding 
4*4 per cent, than one on which he must set aside each 
year a portion of his interest for depreciation of his 
principal. 

And then, many investors are prone to overlook the 
necessity for amortizing their investments in this way. 
At the beginning, there seems no necessity, as the bonds 
have a long time to run, and they therefore simply spend 
their interest each year, until, as the bond nears maturity, 
they are brought up with a round turn by the fact that 
the market price has slumped forever, and they see that 
they have really been living on a part of their principal 
without realizing it. An illustration of this fact was 
brought to my attention a short time ago. A certain in- 
dividual inherited an estate amounting to about $40,000, 
all being invested in high-grade railroads, governments 
and municipals. The investments had been made about 
twenty years ago, and all the issues had paid their inter- 
est regularly. The owner of the bonds had lived on his 
interest and had paid no attention to the fact that nearly 
all the issues were steadily nearing maturity. As it hap- 
pened, every bond on the list (and there were over twenty 
of them) will mature prior to 1928 and some mat 



46 How to Invest Money Wisely 

prior to 1916. Also, every issue was bought at a pre- 
mium, some as high as 122. 

The list looked very attractive, but when the heir of 
this estate came to have the securities appraised, he found 
that its value had shrunk from over $40,000, within the 
twenty year period, to about $35,000, and that between 
the present time and maturity, it would shrink further 
to about $33,000. Thus, the original owner had not only 
been spending all his interest, but in the period named 
had consumed $5,000 (12J4 per cent) of his principal 
also. 

Now, if this fund had been invested in bonds of equal 
security, bearing lower rates of interest, and some real 
attempt at diversification had been made, the owner would 
never have made the mistake of living on his principal 
in this fashion. 

To show that my contention regarding the steadily de- 
clining tendency of long term, high-grade bonds has not 
been confined to a few issues during the past ten years, I 
present on page 47 a price comparison from 1902 to date, 
embracing fifteen representative long term high-grade 
railroad issues. 

Thus, an original investment of $16,235.00, on which 
the yield per annum in interest was $575, had depreciated 
no less than $1,985, or over 12 per cent, within the 
period named. The total amount of interest received in 
the ten years was $5,750, but in order not to encroach 
on his principal the investor would have to deduct 
$1,985 from the interest received, leaving income of but 
$3,765 for the decade, or less than 2y 2 per cent per 
annum. 



Further Application of Sound Principles 41 



Prices 

Sept 

Title of bond: Due 1902 L912 

Allegheny Valley 4s 1942 108 1 00 

Atch. gen. 4s 1995 103 

Balto. & Ohio 4s 1948 L02 96 

Cent, of N. J. 5s 1987 \M) l / 2 L18 

C. B. & Q. 111. Div. sy 2 s L949 101 

C. M. & St. Paul gen. 4s 1989 113 97 

Chic. & Nor. W. 3^s 1987 104 S4 

111. Cent. 1st 4s 1951 114*4 101m 

111. Cent. St. L. Div. 3s 1951 87J/2 72K' 

Lake Shore 3,^s 1987 107 88 

Lehigh Valley 4^s 1940 117^ 104J 

N. Y. Cent. 3^s 1997 106^2 85^2 

Xor. Pacific 4s 1997 104^ 98 

Union Pacific 1st 4s 1947 104^2 99 

West Shore 4s 2361 114 98)4 

The net result of an investment list of this kind (ex- 
pressed in $1,000 bonds) if made ten years ago, is shown 
by the table below. 

Selling 

Cost Value Loss in 

Due 1902 1912 Principal 

Alleghenv Valley 4s 1942 $1,080.00 $1,000.00 $8().nn 

Atch. gen. 4s 1995 1,030.00 970.00 60.00 

Balto. & Ohio gen. 4s 1948 1,020.00 960.00 60.00 

Cent, of X. J. 5s 1987 1,365.00 1,180.00 185.00 

C. B. & Q. 3^s 1949 1,010.00 840.00 170.n0 

C. M. & St. Paul 4s 1889 1,130.00 970.00 160.00 

Chic. & N. W. 3y 2 s 1987 1.040.00 840.00 200.no 

111. Cent. 4s 1951 1.145.00 1,017.50 127.50 

111. Cent. St L. 3s 1951 875.00 72.V00 140.00 

Lake Shore 3^s 1987 1,070.00 880.00 190.00 

Lehigh Valley 4^s 1940 1,175.00 1,045.00 130.00 

N. Y. Cent. 3 l / 2 s 1997 1,065.00 855.00 210.00 

Xor. Pacific 4s 1997 1,045.00 980.00 

Union Pacific 4s 1947 1,045.00 990.00 

West Shore 4s 2361 1.140.00 \^:.:>o L52.60 

Totals $16,235.00 *1 1,250.00 $i.^ 



48 How to Invest Money Wisely 

It should be remembered that this is not an extreme 
case. Nearly all the issues included in this list carry 
either 3% or 4 per cent. If we made up such a list of 
5 and 6 per cent bonds of the same type of maturity, 
security, etc., the depreciation would be much greater. 

I shall next present some examples of results where 
the factor of maturity is taken into consideration in an 
intelligent way. 



VII 

The Factor of Maturity in Bonds 

TAKING into consideration the general principles 
for distributing investments which we have al- 
ready discussed, it may be wise to present some 
examples showing the advantages which could have been 
gained by applying these principles, even in a limited 
way, ten years ago. 

To select an intelligent investment list of bonds in the 
year 1902 was no easy matter. All bond issues were then 
ranging at high prices, as there had been a steady ad- 
vance in quotations for a period of four years, and the 
world's rates for money had held at low figures for more 
than half a decade. This was the time when all the really 
high grade 3 J / 2 and 4 per cent bonds of long maturities 
were selling far above par, and to the average man it 
seemed pr.actically impossible to select bonds for perma- 
nent investment without paying premiums of from five 
to fifteen points. 

Thus, it was a period when the importance of selecting 
bonds of relatively short maturities applied with particu- 
lar force. But, as shown by the examples below, even at 
that time one might have selected good bonds which, dur- 
ing the ten years following, have continuously ranged at 

(49) 



50 How to Invest Money Wisely 

firm prices and are today quoted at better figures than 
when the purchases were made. The possibility of this 
is illustrated by Example No. 1, below. 

Example 1. Railroad Issues. 

Price Price 

Jan., 1903 Jan., 1912 

Atch., T. & S. R, East. Okla. div. 4s, due 1928 94 96^4 

Balto. & Ohio, S. W. div. 3j4s, due 1925 89 91 

C. B. & Quincy coll. 4s, due 1921 95 98 

Col. & So. first 4s, due 1929 93 97 

Houston & Texas Cent. 4s, due 1921 93 95 

In all the above cases it will be noted that the prices of 
January, 1912, were higher than those recorded at the 
close of 1902. And this fact is chiefly due to the ap- 
proaching maturity of the issues. It may be true that 
some of these bonds have improved in actual investment 
position, and intrinsically are stronger than they were 
ten years ago, but nevertheless, had they been issues of 
long maturity, they would today, in practically all cases, 
be selling at lower figures. The only year in which any 
material decline has been shown in these issues from the 
average prices of 1902 and 1903, was in 1907, when, in 
common with every type of bond, there was a temporary 
slump during the panic days. 

We might present an illustration of the same kind re- 
garding public utility issues. It was much more difficult 
ten years ago to select good public utilities than it is to- 
day, but the following five bonds will serve to illustrate 
the point. 



The Factor of Maturity in Bonds 51 



Example 2. Public Utility Issues. 

Price Price 

Jan., L903 Jan.. L913 

Detroit City Gas 5s, due 1923 96 98 

Cleveland, Elyria & \Y. first 5s, due L920 95 

Cleve., Painesville & Eastern first 5s, due L91C 90 100 

East St. Louis & Sub. coll. 5s, due 1932 96 

Houston Electric first 5s, due 1925 96 99 



As in the case of the railroads, all good first liens on 
public utilities were in 1902 selling at relatively high 
prices, and this was especially true of those having long 
maturities. But nevertheless, there were some issues, 
such as the above, which would have stood a strong in- 
vestment test, and which, because of the approaching 
maturities, were pretty certain to enhance in value during 
the ensuing years. 

The same test could be put to other types of bonds with 
the same general result. 

But the average investor, while interested in being 
shown what he might have done a decade ago, is naturally 
more interested in the vital question of what may be 
the wise thing to do at the present time. I therefore sub- 
mit below lists of good railroad and public utility bonds 
of relatively short maturities and which can be bought 
at or under par. It may be pointed out that the present 
(1912) appears to be a far more opportune time for 
properly arranging investment lists than has been the case 
for a good many years. Prices of all investment issues 
are low today, as compared with earlier years, and while 



52 How to Invest Money Wisely 

it may be that we will not see very much higher prices 
reached for some time, yet selections can clearly be so 
made that full principal can be maintained, and in some 
cases, income can be increased. From the list below the 
investor who is ultra conservative, and wishes to take no 
speculative risks whatever, can select absolutely safe is- 
sues, while the investor who, making the safety of his 
principal his first thought, wishes to get the benefit, to 
a certain extent, of enhancement in earning power of the 
properties covered, during the years to come, can add 
other issues of more speculative characteristics. 

The following list of thirty-five standard representa- 
tive railroad bonds affords considerable scope for intelli- 
gent investment selection. As will be noted, not a single 
bond in this list is quoted at a premium, and some of the 
issues are selling well below their par values. They are 
all bonds of relatively short terms, most of them matur- 
ing within twenty-five years. 

As for the actual standing and security of these issues, 
a brief examination of the facts will show how strong they 
all are. For example, the Eastern Oklahoma 4s of the 
Atchison system are a first lien on 480 miles of road at 
$20,000 per mile ; they are a direct obligation of the main 
system, and for the full ten years have been protected by 
a very heavy margin of safety. The Brunswick & West- 
ern 4s are an underlying lien of the Atlantic Coast Line 
Railroad, are secured by first mortgage at less than 
$9,000 per mile, and have been assumed by the parent 
company. The Silver Springs, Ocala & Gulf 4s are also 
an underlying assumed bond of the Atlantic Coast Line 



The Factor of Maturity in Bonds 



Railroad Bonds. 

Price 
Sept, L912 

Atchison (East Okla. div.) first 4s, due 1928 

Brunswick & Western gtd. first 4s, due 1 ( J38 

Silver Springs, Ocala & Gulf gtd. 4s, due L918 

Baltimore & Ohio prior lien S l / 2 s y due 1925 91 

Baltimore & Ohio Pitts. Jc. & M. D. 3$4s, due L925. . . 

Pittsburg & Western first 4s, due 1917 

C. B. & Q. Nebraska Ext. 4s, due 1927 98 

Chic, Rock Isd. & Pacific refd. 4s, due L938 87 

Chic, Rock Isd. & Pacific col. Tr. "P," due L918 95^ 

C, M., St. Paul & Omaha cons. 3 l / 2 s, due 1930 91 

Colorado & Southern first 4s, due 1929 94 

Cinn., Ind., St. Louis & Chic first 4s, due 1936 96 

New York, Lack. & W. Term. & Imp. 4s, due L923 98 

Del. & Hudson 10-year conv. deben. 4s, due 1916 98 

Denver & Rio Grande first cons. 4s, due 1936 86 

Rio Grande Western first trust 4s, due 1939 82 

St. Paul, Minn. & Man. cons. 4s, due 1933 98 

St. Paul, Minn. & Man. Montana Ext. first 4s, due 1937 97 

Carbondale & Shawneetovvn first 4s, due 1923 95 

Long Island R. R. first cons. 4s, due 1931 95 

Missouri Pacific trust 5s, due 1917 

Missouri Pacific first coll. 5s, due 1920 97 

Central Branch Railway first guar. 4s, due L919 

Lake Shore & Mich. So. deben. 4s, due L928 

Lake Shore & Mich. So. deben. 4s, due 1931 

Michigan Central deben. 4s, due 1929 88*4 

Pennsylvania R. R. conv. 3^s, due 1915 

Sunbury & Lewistown first 4s, due 1936 97 

Pennsylvania Company guar. 4s, due 1931 97 

Seaboard Air Line Atl. -Birmingham first 4s, due I • 88 

Southern Pacific Co. conv. 4s, due L929 94 

Central Pacific guar. 3^s, due L929 91 

Houston & Texas Central gen. 4s, due 1921 

South Pacific Coast first gtd. 4s, due 1931 

Oregon Shore Line gtd. ref. is, due 1929 91-H 



54 How to Invest Money Wisely 

Railroad and are a first mortgage at less than $8,000 per 
mile. The Pittsburg & Western first 4s are an underlying 
lien on the Baltimore & Ohio system, are limited to only 
$3,000 per mile, and are provided for in one of the re- 
funding mortgages of the Baltimore & Ohio. The Cin- 
cinnati, Indianapolis, St. Louis & Chicago first 4s are an 
assumed bond of the Cleveland, Cincinnati, Chicago & St 
Louis system, and are very high grade. The Carbondale 
& Shawneetown first 4s are a divisional lien of the Illi- 
nois Central, and are provided for in .the latter's St. 
Louis Division mortgage. The Central Branch Railway 
first 4s are one of the smaller underlying issues of the 
Missouri Pacific system and are absolutely secure. 
The Sunbury & Lewistown first 4s are an under- 
lying divisional issue of the Pennsylvania system. 
Houston & Texas Central general 4s are a divisional bond 
of the Southern Pacific and the Oregon Short Line guar- 
anteed refunding 4s are secured by valuable collateral 
of Union Pacific. In fact, every one of these issues 
enjoys a high investment position, and they are all rated 
either "Aaa" or "Aa" in "Moody's Analyses of Railroad 
Investments." 

Of course there are many other good railroad bonds of 
short maturity, and with equal strength, which might be 
included in a list for investment selection. But the above 
have the additional merit of being marketable, and with 
selling records back of them which add to their attractive- 
ness. In addition to such bonds as these, we find in the 
railroad field a multitude of equipment issues, most of 
which mature serially in from one to fifteen years. In 



The Factor of Maturity in Bonds 



any important investment list, many such short term is- 
sues can be wisely included.* 

But the above list covers railroad bonds only. There 
is the wide field of public utility corporation bonds yet 
to be referred to. I append below a limited list of such, 
which have the same characteristic of near-by maturity. 

Public Utility Bonds. 

Pr\ 
1912 

Chicago Railways Co. first 5s, due 1927 100 

Cleveland Railway first 5s, due 1931 100 

Cleveland, Painesville & Eastern first 5s, due 1916 99 

Danville St. Ry. & Light first 5s, due 1925 99 

Grand Rapids Railway first 5s, due 1916 M 

Houghton County St. Ry. first 5s, due 1920 97 

Illinois Central Traction first 5s, due 1933 94 

Lake Shore Electric cons. 5s, due 1923 95 

Mil. Elec. Ry. & Light ref. and Ext. 4^s, due 1931. . . 94 l / 2 

Omaha & Council Bluffs Ry. & Bge. first 5s, due 1928. . 98 

Portland (Ore.) Ry. first and ref. 5s, due 1930 99 

Wheeling Traction Co. first 5s, due 1931 96 

Altoona Gas Co. first 5s, due 1932 97 

Detroit City Gas Co. 5s, due 1923 L0Q 

Houghton County Elec. Light first 5s, due 1927 96 

Oklahoma Gas & Electric first 5s, due 1929 

Portland (Me.) Electric Co. first 5s, due 1026 98J^ 

Amer. Tel. & Tel. coll. 4s, due 1929 01 

Pacific Tel. & Tel. coll. 5s, due 1937 100 

The foregoing list is shorter than that shown for the 
railroads and of course the security of some of the issues 



*\ later chapter discusses the characterise rt term notes ind 

equipment issues. 



56 How to Invest Money Wisely 

is not so high. But it is less easy to select a large line of 
public utility issues of great strength and which sell ma- 
terially below their par value. Most public utility bonds 
carry 5 per cent interest, and the majority of the strong- 
est ones of course sell either close to their par value or 
at a premium. But, as in the case of all other bonds, 
those issues whose maturity is not too far away, are, 
other things being equal, the most desirable investments. 



PART TWO 
INVESTING FOR PROFIT 






VIII 
Taking Advantage of Potential Possibilities 

THE term, "investing for profit," as here used, 
should be construed as meaning any method oi 
investment where the motive is not wholly confined 
to securing a fixed return on the principal originally 
invested, but also takes into consideration the possi- 
bilities of increase in both interest and principal as the 
time goes by. Thus, the man who buys a stock, for ex- 
ample, like Baltimore & Ohio, on the theory that in due 
course the dividend rate will be increased and conse- 
quently the market value of the principal enhanced, is to 
be placed in this class. Such a man is to a certain extent 
speculating on the future, although if his judgment is 
sound, and his investment selections made at the proper 
periods, he is pretty sure to meet with a fair measure of 
success. 

For investing of this character, the ideal security is 
usually the common stock of a good railroad. It is true 
that sometimes preferred stocks, and certain types of 
bonds, such as convertible issues, can be selected for oper 
ations in this field, but here the opportunities are ne 
sarily limited. If it is determined to select a preferred 
stock, one must usually be found which at the time ifl 

(59) 



60 How to Invest Money Wisely 

either not paying its full dividend, or is earning only a 
moderate margin above the dividend requirement. Under 
ordinary conditions, there cannot be much hope of a 
steady and large advance in an issue of this type which 
is already paying its full dividend rate and standing on a 
high investment plane. In other words, the limitation 
of both dividend and value is fixed, and beyond a certain 
point little or no "profit' ' can be secured on such an 
issue. It is true, of course, that in times of extreme de- 
pression or of panic, many attractive purchases can be 
made in the preferred stock field, as even the highest 
grade issues of both stocks and bonds then generally 
range well below normal values. But ordinarily, such 
schemes of investment must be mainly confined to com- 
mon stocks. 

When we discuss the investment of funds in common 
stocks, we are naturally bordering pretty closely on specu- 
lation, even though it may be speculation of an extremely 
conservative type. But any one familiar with the subject 
will realize that there are many standard railroad stocks 
in the market with long dividend records back of them 
which can fairly be classed as sound investments. And 
in the following exhibit I have selected a number of 
representative common stocks of railroads, the majority 
of which have been steady dividend payers for many 
years, and which are in large part held by people who 
never "speculate," and buy simply for the return on the 
money rather than in the hope of unusual appreciation 
in price. A rational investment distribution plan would 
to a large extent offset the dangers involved in confining 
one's entire capital to one or two issues. 



Potential Possibilities 61 

It will be seen from this table that anyone placing a 
given sum in equal amounts in the twenty stocks listed, at 
the high prices which prevailed ten years ago, would have 
done exceedingly well, and in that time would not only 
have materially increased his income, but added something 
to his principal as well. Of course, this list includes not 
only the best issues which could have been selected in 
1902, but also includes those active stocks which, in some 
cases, may not have looked very attractive at that time. 
By making up a list on this basis, we show that even 
without exceptional discrimination, an investment fund 
spread widely over the railroad common stock field, would 
not have faired so badly. 

If we assume that an investor purchased 100 shares 
each of the following stocks at the highest prices prevail- 
ing in the boom year 1902, he would have invested in all, 
about $321,900. The total net return at the dividend rates 
then prevailing would have been $9,750 a year, or a little 
over 3 per cent. At the high prices of 1911 (after nearly 
ten years), in spite of the diverse fluctuations of the 
different stocks — some falling and some rising — his cap- 
ital would have amounted to $351,100, and his dividend 
return, $15,800, or nearly 5 per cent on the original 
amount. At average prices of April 1, 1^12, his in\ 
ment would amount in principal to $332,600, and his re- 
turn this year would be $15,700. 

On the face of this exhibit it would seem that any 
investor who had followed this course ten years 
would have done very well indeed. In that time, al- 
though he had witnessed some extreme declines during 



62 How to Invest Money Wisely 

Twenty Representative Common Railroad Stocks 
(Ten Year Record). 



1902 
High cost 

Atchison $9,675 

At. Coast 18,350 

B. & 11,575 

B. R. & P 12,800 

Can. Pacific 14,525 

C. R. R. of N. J.... 19,800 

Ches. & 5,750 

C. M. & St. P 19,875 

Chic. & N. W 27,100 

Del. & H 18,450 

D., L. & W 27,700 

Great Nor 20,300 

111. Cent 17,350 

Leh. Valley 7,700 

L. & N 15,950 

N. Y. Central 16,900 

Nor. Pacific 21,650* 

Penn. R. R 1/,000 

So. Pacific 8,125 

Union Pacific 11,325 

$321,900 $351,100 $332,600 

the panic of 1907 and during other general market re- 
actions, yet the result shows a net increase up to last 
April of $10,700 in principal, and an enlargement of an- 
nual income from $9,750 to $15,700. 



Div. 




Div. 


; 


Div. 


rate 


1911 


rate 


Apr., 1912 rate 


% 


High value % 


Value 


% 


4 


$11,675 


6 


$10,850 


6 


3/2 


13,925 


6 


13,900 


7 


4 


10,975 


6 


10,600 


6 


4 


12,600 


5 


10,500 


5 


5 


24,700 


10 


23,350 


10 


8 


32,000 


12 


36,000 


12 


1 


8,675 


5 


7,825 


5 


7 


13,350 


7 


11,000 


5 


7 


15,050 


7 


12,200 


7 


7 


17,500 


9 


17,125 


9 


7 


57,000 


20 


56,000 


20 


7 


14,000 


7 


13,350 


7 


6 


14,700 


7 


13,175 


7 




18,700 


10 


16,700 


10 


5 


16,000 


7 


15,625 


7 


5 


11,550 


5 


11,350 


5 


7 


13,800 


7 


12,300 


7 


6 


13,000 


6 


12,450 


6 




12,650 


6 


11,200 


6 


4 


19,250 


10 


17,100 


10 



* For 1904. 



Potential Possibilities 63 



But this is not by any means the whole story. As a 
matter of fact, any investor who had followed this course 
would have fared far better than this, as the following 
facts show. 

Special Benefits Received. 

More than half the above railroads have, since 1902, 
accorded their stockholders special benefits in the nature 
of extra dividends, subscription rights, stock bonuses or 
"melons, " and these benefits have naturally added to the 
attractiveness of the stocks as investments. For example : 
In 1905, the Atlantic Coast Line paid an extra dividend 
of 25 per cent, of which 20 per cent was in "scrip" and 
5 per cent in redeemable certificates, since paid off; in 
1906, the Buffalo, Rochester & Pittsburg declared a 25 
per cent dividend in the stock of the Mahoning Invest- 
ment Co., thus divorcing its coal properties ; in 1908, the 
Canadian Pacific gave its stockholders the right to sub- 
scribe to the extent of 20 per cent of their holdings to 
new stock at $120 per share, and in 1911 gave the right 
to subscribe at $150 to new stock to the extent of 9 per 
cent of their holdings; Chicago & Northwestern gave its 
stockholders subscription rights to take new stock at par 
in both 1907 and 1910; Chicago, Milwaukee & St. Paul 
accorded the same privilege to its stockholders in 1907 ; 
Great Northern in 1906 paid a dividend of 100 per cent 
in the Great Northern Ore Certificates and also gave sub- 
scription rights at par to the extent of 40 per cent in new 
stock; Illinois Central in 1907 gave subscription rights to 
its stockholders for new stock at 115; Delaware, Lacka- 



64 How to Invest Money Wisely 

wanna & Western in 1909 gave its stockholders a 15 per 
cent stock dividend, and permitted them to subscribe at 
par to the stock of the Delaware, Lackawanna & Western 
Coal Co., which now pays 10 per cent dividends ; Lehigh 
Valley in 1911 gave its stockholders the right to subscribe 
to the extent of 50 per cent of their holdings to new stock 
at par, and also declared an extra dividend of 10 per cent 
in the stock of the Lehigh Coal Sales Co., which already 
has sold above $240 per share ; New York Central gave its 
stockholders the right to subscribe to new stock at par in 
1910; Pennsylvania gave similar rights to its stockholders 
in both 1909 and 1910; Southern Pacific in 1907 gave its 
common stockholders the right to subscribe at par to its 
7 per cent preferred stock, which was called for payment 
at 115 in 1909, the stockholders being given the privilege 
of converting into common, or into A]/ 2 per cent bonds, 
with $20 in cash on each share; Union Pacific in 1907 
gave its stockholders the right to subscribe to the extent 
of 25 per cent of their holdings to convertible bonds at 90. 

Thus, without taking the space in this chapter to work 
out the actual values received during the past ten years 
by these stockholders, aside from ordinary dividend pay- 
ments, it is easily realized that holders of such stocks 
have been able to secure, on the average, far more than 
6 per cent on their money, and today are the owners of 
a principal sum which has increased much more than the 
foregoing table indicates. 

This result, it will be seen, would have been accom- 
plished by anyone who followed the plan of investing in 
equal amounts in all of these standard common stocks, 



Potential Possibilities 65 

without any particular discrimination or selection. If 
scientific principles had been followed in the matter 
selection and the investment confined to eight or ten. of 
the strongest and most promising issues at that time, the 
net outcome would have been even more favorable. 

While at the present time, possibilities which were 
present ten years ago in the railroad common stock field, 
are few and far between, yet intelligent selection of issues 
in a plan of "investing for profit'' can still undoubtedly 
be made not only in the railroad btit also in the industrial 
and public utility fields. 



IX 
Investment Cycles 

IN the last chapter I presented an exhibit of a ten- 
year investment in twenty representative common 
stocks of American railroads, demonstrating that 

if purchases were made of equal amounts of these 
stocks at the highest prices reached in the year i 
(which, in a general way, was the top of the boom period 
which set in in 1897), the purchaser would today h 
a considerable increase in his principal, and, during the 
entire decade, including the extra dividends, "rights" and 
other benefits which have been disbursed, would have re- 
ceived a return averaging well above 6 per cent on the 
total investment. 

When it is realized that during the past ten year 
have been through a panic period and all sorts of things 
have occurred to affect railroad stock values adverse 
such as poor crops for two years, anti-railroad legislation, 
aggressive "trust-busting," rising cost of operation and 
declining or horizontal freight and passenger rates, it will 
be seen that investments in good common stocks of rail 
roads are really pretty good things to have as permanent 
propositions. For at no time since 1902 has there devel- 
oped a business situation or period where it could be as- 






(67) 



68 How to Invest Money Wisely 

serted that the railroads have been exceptionally benefited. 
It is true that the country has grown steadily enough, 
but so has capitalization grown, and fixed charges today 
are relatively much higher than they were in 1902. 

But while it is interesting to see how investors in rail- 
road common stocks have fared when they have bought 
issues simply on their individual merits and without re- 
gard to general business or investment conditions, and 
have paid no attention to the effect on values of recurring 
cycles of prosperity or depression, a far more interesting 
and useful study is to ascertain how those have fared 
who have given proper attention to those general or fun- 
damental factors which so directly affect security prices 
over reasonably long periods. One of the main things 
for every investor to do is to carefully study the funda- 
mental business trend, and endeavor to ascertain the pe- 
riods when investments should be most wisely purchased 
and when they should be sold. For there are times when 
it is clearly foolish for an investor to buy average stocks 
or bonds, and of course there are other times when the 
investor is foolish if he does not do some realizing — 
this latter being particularly true of stock investments. 

To illustrate. The year 1902, at the crest of the busi- 
ness and speculative boom, was not a time to buy stocks, 
but it was a time to do some liquidating. Conversely, 
the year 1907, after the October panic, was no period 
for persons to liquidate in, but it was a splendid period 
for investing. And for six or eight months after the 
panic, the investment "bargain counter'' was daily dis- 
played, and he was a very foolish man who, having the 



Investment Cycles 69 

necessary capital, hesitated to buy good, well-tested SC 
curities at that time. Certainly, as far as mv position 
went, for the whole period from October, 1907, to the 
middle of 1909, 1 was steadily recommending the pur- 
chase of good dividend paying .stocks, and well secured 
short term bonds. 

Returning to our illustration in the last chapter, let us 
take this same list of twenty representative raili cks 

and show what the result would have been tu date, in the 
case of a man who, in addition to the study of intrinsic 
values, gave proper attention to investment cycles. This 
man would have clearly recognized the period follow 
the panic as one for making investments aggressively. 1 
present below a table showing the cost of 100 shares of 
each of the twenty stocks, if purchased on or about Jan 
nary 1, 1908 (after the panic had subsided and confi- 
dence was being restored), and also the values of the 
same stocks on or about January 1, 1910, or tw< 
later; and the recent values. 

This exhibit shows how well the investor li 
who, during the past four years has taken into considi 
tion the general business trend as well as the specific 
worth of the properties themselves. It will be seen thai 
an original investment of $239,100 in January . 
in value to $326,400 by the end of 1909 (or within I 
year.-' time), while Up to last April the value had been 
still further increased to $338,650, and the holder i- now 
receiving in dividends something more than ( > ] •_. per ccu\ 
his original investment, in other words, hi- principal 



70 How to Invest Money Wisely 

has appreciated over 40% within about four years, and 
his dividend return has been proportionately enlarged. 

Value 
Jan., 1908 

Atchison $6,900 

At. Coast 6,850 

Bait. & Ohio 8,100 

B. R. & P 7,500 

Can. Pacific 15,400 

C. R. R. of N. J... 16,500 
Ches. & Ohio .... 3,000 

C. M. & St. Paul.. 10,425 

Chic. & N. W 13,550 

Del. & Hud 14,750 

D. L. & W 42,000 

Great Northern .. 11,600 

Illinois Central . . . 12,300 

Lehigh Valley .... 10,600 

L. & N 9,125 

N. Y. Central ..... 9,025 

Nor. Pacific 11,750 

Penn. R. R 10,900 

So. Pacific 7,125 

Union Pacific 11,700 

Totals $239,100 $326,400 $338,650 

But in addition to this, other benefits have accrued. 
Since the opening of 1908 the Canadian Pacific stock- 
holders have twice received valuable "rights ;" in 1910, the 
Chicago & North Western stockholders received "rights ;" 
in 1909, the Delaware, Lackawanna & Western stock- 
holders received a 15% stock dividend with privilege to 



Value 


Value 


Present 


Jan., 1910 


April, 1912 


Div. Rate 


$12,400 


$11,000 


6% 


13,600 


14,150 


7 


11,850 


10,700 


6 


10,600 


10,500 


5 


17,700 


24,500 


10 


22,900 


38,000 


12 


5,775 


8,000 


5 


15,100 


11,200 


5 


18,400 


14,400 


7 


18,125 


17,500 


9 


56,000 


55,000 


20 


14,750 


13,400 


7 


14,900 


12,900 


7 


10,900 


16,500 


10 


12,650 


15,800 


7 


12,700 


11,300 


5 


14,325 


12,400 


7 


13,225 


12,500 


6 


12,100 


11,500 


6 


18,400 


17,400 


10 



Investment Cycles 71 

subscribe to the stock of the new Coal Sales Co.; the 

Lehigh Valley stockholders received "rights" o\ the same 
kind last year, and also stock of a Coal Sales Co., which 
is now selling above $240; both Pennsylvania and New 
York Central have given their stockholders subscription 
rights since the opening of 1908; etc. 

So that, as a matter of fact, holders of these stocks 
have fared a great deal better since the date of purchase 
than the mere quotations indicate. 

But even though the holding of all these stocks which 
we assume were bought in the beginning of 190X have 
rewarded the investor so handsomely, would it have been 
the very wisest judgment to have kept them all until this 
time? Was not the end of 1909 a period when consid- 
erable liquidation could have been wisely undertaken? 

Undoubtedly. Conditions at the end of 1909 were such 
that a very severe reaction in general business seemed in- 
evitable. The recovery in values had been so pronounced 
after the panic and the period of speculation in many lines 
had gone so far, that it did not require much shrewdness 
to see that security values had, as a rule, reached their 
highest for a considerable time to come. For the pure 
speculator, therefore, this was clearly a period when sales 
should take the place of purchases, and wise "hulls" 
should switch to the "bear" side of the market. But how 
about the stock investor; the man who makes it a rule t<> 
pay for his holdings and never sell what he d<>r^ np1 own ? 
The proper thing for him to have done was to sell those 
issues which were quoted clearly above their assel valti 
and keep those which had the surest potential value for 



72 How to Invest Money Wisely 

the future. Acting on this theory, the investor would 
have liquidated the following from the above list: — 

Atchison common, then selling at about 124; 
Baltimore & Ohio, then selling at about 118 ; 
St. Paul common, then selling at about 151; 
Chic. & N. Western, then selling at about 184 ; 
Great Northern, then selling at about 147^4 ; 
Illinois Central, then selling at about 149 ; 
New York Central, then selling at about 127; 
Northern Pacific, then selling at about 143. 

There were good reasons at the end of 1909 and the 
opening of 1910 for selling all of these stocks at the 
prices then prevailing. Atchison common was paying out 
in dividends all that was justified, and the issuing of con- 
vertible bonds clearly indicated that the road would not 
be able to further expand its dividend rate for a good 
many years. Therefore, 124 was a pretty full price for 
the stock. Baltimore & Ohio was suffering from the 
freight rate situation, and it looked as though the main- 
tenance of even 6% would be very doubtful during the 
following year ; St. Paul was spending double its original 
provision on its Puget Sound extension, and the 7% divi- 
dend was even then in jeopardy; Chicago & North West- 
ern was selling abnormally high for a 7% stock, even for 
a bull market ; Great Northern and Northern Pacific were 
ranging at prices not justified by the outlook, and New 
York Central was clearly paying too high a dividend. 

On the other hand, the investor would have been fool- 
ish to have disposed of many of the remaining stocks on 
the list, even though a much lower stock market seemed 



Investment Cycles 

to be in sight. The asset value of Atlantic Coast Lino 
was far above its market price; Buffalo, Rochester & 

Pittsburg seemed to have turned the corner and was en- 
tering a more satisfactory period; Canadian Pacific had 
a demonstrated asset value of far above 200 even at thai 
time, and larger dividends seemed assured for the near 
future; Central of New Jersey promised to be another 
Lackawanna, and it would have been foolish to sell it at 
230; Lehigh Valley w r as just entering upon its period of 
recent prosperity ; Louisville & Nashville was steadily 
adding to its assets without increasing its charges, while 
both Southern and Union Pacific promised to maintain 
their strong positions, in spite of temporary set-backs in 
crops or general business, wdiich might have been ex- 
pected. 

Now, where an investor, in close touch with general 
business conditions, had done approximately what I have 
suggested above, and had liquidated at the end of 1909 
those stocks wdiich ought to have been liquidated, and 
kept those which I have enumerated above, he would to- 
day be in a remarkably healthy condition. Since 1909 
all of the stocks which I have suggested as having been 
wise sales in 1909 or at the opening of 1910 have sold 
anywhere from 20 to 50 points below the 1909 prices. St. 
Paul has been down to nearly par; New York Central 
has been at par; Atchison and Baltimore & Ohio hi 
both been below T par; Great Northern has sold below 1 18 
and Northern Pacific at 110. There have been plenty of 
opportunities to buy back any or all of these i ince 

the spring of 1910 at prices far lower than those ranging 
recently. 






74 How to Invest Money Wisely 

Of course, most people will say that this is all theory 
and does not work out in practice. But here and there 
we find a man who does just this sort of thing, and while 
he may occasionally make a mistake, in the long run he 
greatly adds to his principal by taking cognizance of these 
two great factors in selecting investments, viz., a study of 
the general trade and commercial cycles, and an intelli- 
gent analysis of intrinsic values. 

There is no reason why a man who wishes to follow 
this plan of investment, should take a great deal of risk. 
If he pays a little too much for a stock of real intrinsic 
merit (but has bought it in the proper period) all that 
he has got to do is to hold it as an investment and receive 
his dividends ; in time it will sell up to or above his cost 
price again. 



X 

Distribution and Profit Combined 

IN the foregoing page- we have discussed to some tx 
tent the methods for investing money in common 
stocks of railroads with a view of benefiting by price 
changes over reasonably long periods of time. It has 
been shown that where proper selections of such stock- 
were made, and the purchasing done in a period when 
it was clear that most stocks were selling below their 
intrinsic or asset values, very great advantages haw 
suited, both in the enhancement of principal and the 
increase of income. 

But while the plan there outlined ^i course appeal- to 
those who are willing to concentrate their capital in one 
type or one class of issues, and are also willing to take 
a measure of chance such as is never absent from pure 
stock investments, it is not to be assumed that such a plan 
should be followed by all investors, or that the principles 
of proper investment diversification should be ignored to 
take a chance at an opportunity of a semi-speculative 
type. The examples given are mainly illustrations 
what might have been done, and what some investors 
actually did do in the period mentioned. 

At the same time, it is possible to follow principle 
sound investment distribution and also take advantage, t<> 






75 



76 How to Invest Money Wisely 

substantial degree, of the rise and fall in general values 
of securities. In an earlier chapter I outlined a plan for 
proper investment diversification and presented a classifi- 
cation of several distinct types of issues, from which in- 
telligent selections could be made. The idea of this classi- 
fication was not only to spread the risk among various 
types of industry, but also to select different bonds and 
stocks with a view of having one offset the other to a 
degree in rises and falls in individual values. It is my 
purpose now to present a concrete example of how a 
given investment fund, invested at the right period, and 
taking into consideration all the general and specific in- 
fluences, would have fared during the past four years. 

The period of a year or more after the panic of 1907 
was unquestionably a good time to invest in carefully 
selected stocks and bonds, not only in the railroad field, 
but also in the industrial, public utility and other invest- 
ment markets. Of course, the very best time to make 
such purchases was in or immediately after the panic, 
but panic periods are not seasons when the average man 
has the courage to do much buying, even though he has 
the actual money available and knows that things are 
cheap. In the following example, therefore, I have 
selected July 1, 1908, as the date on which the invest- 
ments were made. By this time general confidence had 
been fully restored ; there was little in sight to warrant 
lower prices, while there were plenty of factors clearly 
visible which pointed to a revival in trade and recovery 
all along the line. 

Assuming that the investor had a fund of approxi- 



Distribution and Profit Combined 77 

mately $200,000 to put into securities, he might have dis 
tributed his purchases in about the following proportions : 
10 per cent in Government or Municipal issues: 20 per 
cent in railroad bonds; 20 per cent in railroad stocks; 
10 per cent in public utility bonds; 10 per cent in public 
utility stocks ; 10 per cent in industrial bonds ; 10 per cent 
in industrial stocks; 10 per cent in bank or trust com 
pany stocks. 

Following this plan, and taking into consideration all 
the principles for investment selection which we have 
been outlining, a result as follows might have been ob- 
tained : 

Cost Yield Valve Vield 

Government Issues: July l, per Tuh- i. prr 

1908 Annum 1912 Annum 

$5,000 Japanese Ster. 4*s, due 1025... $4,450 $225 $4,600 

5,000 Chicago Wor., Fr. 4s, due 1921. 5,000 200 5,000 200 

5,000 Seattle City 4s, due 1925 4,850 200 4,900 200 

5,000 Berlin 3*s, op. after 1909 4,600 175 1,660 175 

Railroad Bonds: 

$5,000 Atch. East Okla. 4s, due 1928.. 4,800 200 4,800 200 
5,000 B. & O. P. Jc. & M. D. 3*s, 

due 1925 4,150 175 4.400 17 

5,000 C. R. I. & Pcf. ref. 4s, due 103 1 I 200 200 

5.000 Col. & So. 4s, due 1929 4,500 200 200 

5,000 Oreg. Sh. Line ref. 4s, due 1020 4,460 200 200 

5.000 Reading-J. Cent. 4s, due 1951.. 4,700 200 4,900 200 

5,000 Long Island gen. 4s, due 1938.. 200 4,700 200 

5.000 Lake Shore deb. 4s, due 1928.. 4,550 200 4,700 200 

Railroad Stocks: 

$5,000 Atchison preferred (6%) 4,6 250 

5.000 Norf. & West. pfd. (4%) 4,000 200 4.600 200 

5,000 Reading first pfd. (4%) 4.100 200 4,550 20o 

5,000 Union Pac. pfd. (4%) 1.150 200 4,600 200 

5,000 Atchison common i.' 5. 450 

5,000 Baltimore & Ohio common 4,800 300 

5,000 Canadian Pacific 8.000 600 

5,000 Union Pacific common 7,100 500 8,600 500 



78 



How to Invest Money Wisely 



Cost 

Public Utility Bonds: July 1, 

1908 

$5,000 Detroit City Gas 5s, due 1923.. 4,900 
5,000 Am. Tel. & Tel. coll. 4s, due 

1929 4,300 

5,000 Houghton Co. St. Ry. 5s, due 

1920 4,500 

5,000 Portland (O.) 1st and ref. 5s.. 4,650 

Public Utility Stocks: 

$5,000 Am. Light & Traction pfd 4,700 

5,000 Laclede Gas pfd 3,750 

5,000 General Elec. common 6,500 

5,000 Minneapolis Gen. Elec. pfd 5,000 

Industrial Bonds: 

$5,000 du Pont Powder 4$s, due 1936. 3,850 
5,000 U. S. Realtv & Imp. 5s, due 

1924 4,000 

5,000 U. S. Steel Corp. 5s, due 1963. 4,850 

5,000 Fairmont Coal 5s, due 1931 4,550 

Industrial Stocks: 

$5,000 U. S. Steel pfd 5,100 

5,000 Inter. Harvester pfd 5,050 

5,000 Virginia Chem. pfd 4,950 

5,000 Am. Car & Foundry pfd 4,850 

Bank and Trust Company Stocks: 

$2,000 (par) Astor Trust (N. Y.) 5,800 

2,000 (par) Equitable Tr. (N. Y.) . . . 7,300 

2,000 (par) First Nat. Bk. (Chicago). 7,600 

2,000 (par) Shawmut Bk. (Boston).. 5,800 

Totals $197,050 



Yield 


Value 


Yield 


per 


July 1, 


per 


Annum 


1912 


Annum 


250 


5,050 


260 


200 


4,550 


200 


250 


4,825 


250 


250 


5,000 


250 


300 


5,400 


300 


250 


4,900 


250 


400 


8,300 


400 


300 


5,350 


300 



225 



4,550 



225 



250 


4,450 


250 


250 


5,150 


250 


250 


4,850 


250 


350 


5,600 


350 


350 


6,050 


350 


400 


6,000 


400 


350 


5,800 


350 




7,200 


160 


320 


11,000 


480 


240 


8,920 


320 


360 


8,800 


360 



$10,195 $228,732 $10,770 



Here we find an investment scheme for about $200,000 
which meets every test as far as wide distribution is con- 
cerned ; measures up to exacting conditions as to security ; 
yielded at the start a very substantial return on the invest- 
ment, etc. The diversification is a wide one, as it is di- 



Distribution and Profit Combined <D 

vided between five distinct classes of investment issues ; 
these classes are sub-divided into proper proportions of 
bonds and stocks ; and the different issues themselves have 
in nearly all cases been selected because of their independ- 
ent and individual characteristics of strength. In the 
government issues, the risk is spread into different coun- 
tries, and those confined to the United States are sepa- 
rated widely in a geographical sense; the railroad bonds 
in every case, are of separate systems, and are widely 
distributed ; this is also largely true of the railroad stock- ; 
the public utility issues are divided properly between gas, 
electric light, street railway and telephone companies; the 
industrial issues represent widely diversified undertakings, 
etc.; while the bank stocks are selected from great com- 
mercial centers like New York, Chicago and Boston. 

With this wide selection, the risk of loss has been re- 
duced to a minimum, while the investor has been put in 
position where he can, to some extent, get the benefit of 
favorable developments in a wide field of human activity, 
Selected at a season when all well-tested securities were 
reasonably cheap, it will be noted that the results attained 
have been most satisfactory. Xot only has the aggregate 
principal appreciated from $197,050 to $22X.7M. but the 
income, which was $10,195, or over 5 per cent at the 
time of purchase, has increased to $10,770, which i- 
equal to nearly 5 J / 2 per cent on the original cost, or 4~ s 
per cent on the present value. In addition within this 
four year period "rights" have twice been given to Can- 
adian Pacific stockholder-. 

How much more satisfactory is an investment plan of 



80 How to Invest Money Wisely 

this kind, than one where the investor confines himself 
entirely to "savings bank" issues or other so-called long 
term "high-grade bonds." We have already pointed out 
in previous chapters how unsatisfactory have been results 
where investors have made no intelligent efforts at dis- 
tribution, and have shown that during the past decade, 
very heavy losses in principal have been thus experienced. 
While the foregoing exhibit is in the nature of a "past 
performance," it is fully as true today that scientific dis- 
tribution plans can be worked out for the future; and 
in later chapters I shall attempt to present some concrete 
suggestions along this line. 



XI 
Plans for Investment of Moderate Sums 

IN the last chapter I went into a somewhat extended 
discussion of the proper methods for so diversify- 
ing investment lists, and so selecting certain types 
of investments as to insure the entire safety of the 
principal sum, and also to take advantage, within reason, 
of appreciation in market values, and increases in divi- 
dend returns. An elaborate example was presented of 
an investment scheme covering about $200,000, which, if 
carried out four years ago, would in the meanwhile have 
added about 15 per cent to the investor's total principal 
and also increased his interest and dividend yield ma- 
terially. 

I will now present several plans for proper investment 
diversification, for moderate sums, with the same ends in 
view, viz., to insure security of principal as a first con- 
sideration; to offset the effects of possible depreciation of 
principal as a second consideration ; and to benefit in the 
future by possible appreciation of principal and enlarged 
dividend yield. 

Of course, the fact must not be overlooked that there 
are seasons when it is usually unwise to do much new in- 
vesting of any type, just as there are other periods when 






(81) 



82 Hew to Invest Money Wisely 

a general overhauling of investment lists is most advisa- 
ble. The present time cannot be said to be absolutely 
ideal in either respect, but nevertheless it is much better 
than that in the end of 1909. As far as pure bond in- 
vestments are concerned, the present period is probably 
about as good as any that we are likely to have within 
the next two or three years, provided intelligent selections 
are made. In the stock investment field, the opportuni- 
ties are fair today, although of course, not of the very 
best. 

1. Suggested plan for the investment of $io,ooo, in- 
tegrity of principal being the exclusive consideration. 

An investment of this kind might wisely be divided be- 
tween railroad bonds, public utility bonds and industrial 
bonds, as follows : Price of 

Sept., 1912 Cost 

$2,000 Oregon Short Line ref. 4s, due 1929... at 92 $1,840 

2,000 Seaboard Air Line first 4s, due 1950... at 86 1,720 

2,000 Lake Shore deben. 4s, due 1928 at 92^ 1,850 

2,000 Amer. Tel. & Tel. col. 4s, due 1920... at 90 1,800 

2,000 du Pont Powder, 4^s, due 1936 at 88 1,760 

The above arrangement would yield an income of $410 
per year on a net investment of $8,970. All of the bonds 
except one have comparatively nearby maturities, and, 
regardless of fluctuations in the general market interest 
rate, should easily enough hold their present value, and 
in time work up to par. The Seaboard Air Line first 
4s may be called at par at any time, and most likely will 
be within the next five years. The du Pont Powder bonds 
can be called at 110. 

Having made the above selections the investor woulc 



Investment of Moderate Sums 



still have cash left over of $1,030, which could be em- 
ployed in buying another bond of slightly more specu- 
lative value, if desired, or put into a strong dividend 

paving stock. In any event, if the above list were held 
until maturity there would surely be an appreciation in 
principal of $1,030 on the ten bonds listed above, and 
the extra bond or stock purchase could be regarded as 
the investment of a "potential profit." 

2. Suggested plan for the investment of $2S,000, in- 
tegrity of principal being the first consideration, but a 
desire for a larger income yield, and fair possibilities of 
appreciation also being considered. 

A sum invested under these conditions might wisely be 
distributed at the present time as follows : 

Railroad Bonds: Sept'To^ Cost 

$3,000 Rio Grande Western 1st 4s due 1939. .at 83 
3,000 Long Island R. R. cons. 4s, due 1931.. at 95 2,850 

Railroad Stocks: 

$3,000 Northern Pac. stock (7%) at 126 

3,000 Baltimore & Ohio stock (6%) at 108 3,240 

Public Utility Bonds: 

$3,000 Cal. Gas & El. ref. 5s, due 1937 at 96 

3,000 X. Y. Gas & El. H. & P. 4s, due 1949. at 88 2.640 

Industrial Bonds: 

X) U. S. Realtv & Imp. 5s, due at 90 $2,700 

3,000 Armour Real Estate 4>4s, due at 91 2,730 

1.000 Fairmont Coal 5s, due 1931 at 96 960 

Here would be a list with a par value of $25,000- -cost 
ing in all $24,270, and yielding $1,235 per annum. The 
list, it will be noted, is well distributed and the issues art- 
such that the investor could feel entirely secure for an in- 



84 How to Invest Money Wisely 

definite period. The bond issues would ultimately work 
to their par values, while he would have a moderate inter- 
est in possible appreciation in the future of some of his 
principal through his holdings of Northern Pacific and 
Baltimore & Ohio. The remaining balance of $730 could 
be put into either a bond with some possibilities of appre- 
ciation, or invested in a few shares of a good railroad or 
public utility stock. 

Probably no more satisfactory scheme for the invest- 
ment of this sum of money could be devised for the or- 
dinary investor who is dependent on income. 

3. Suggested plan for investment of $50,000, strength 
of principal of course being a prime consideration, but 
possible appreciation also being quite fully considered. 

Railroad Bonds: Price of 

Sept., 1912 Cost 

$5,000 Baltimore & Ohio 3J^s, due 1925 at 92 $4,600 

5,000 St. Louis & San Fran. gen. 5s, due 1927. at 85 4,250 

Railroad Stocks: 

$5,000 Northern Pacific (7%) at 128 $6,400 

5,000 Kansas City So. pfd. (4%) at 60 3,000 

Public Utility Bonds: 

$5,000 Houghton Co. St. Ry. 5s, of 1920 at 96 $4,800 

5,000 Kansas City (Mo.) Gas 5s, due 1925.. at 97 4,850 

Industrial Bonds: 

$5,000 Westinghouse Mfg. 5s, due 1931 at 95 $4,750 

5,000 Republic Iron & Steel 5s, of 1940 at 91 4,550 

5,000 Bush Terminal 5s, due at 97 4,850 

Industrial Stocks: 

$5,000 Amer. Beet Sugar preferred (6%)... at 98 $4,900 

3,000 Railway Steel Spring, pfd. (7%) at 100 3,000 



Investment of Moderate Sums 85 

The above list embraces $53,000 in par value of securi- 
ties, which would cost at the present market quotations, 
about $49,950. The total yield on this investment would 
be $2,735 per annum, or considerably over 5%. Of 
course, there is a slight speculative element to some of 
these issues, but they are exceedingly well distributed ; 
the bonds are nearly all of short maturities and the stocks 
have large potential as well as actual asset values. 












XII 

Plans for Investing Larger Sums 

THE general principles which we have been laying 
down in these chapters for intelligent investment 
selection and distribution, can of course be ap- 
plied in many ways and for both large and small sums of 
money. Many investors prefer to take a little more risk 
than do others in the attempt to diversify their principal. 
The desire to place oneself in a position where the bene- 
fits of possible growth in values will be at least partially 
received, is very strong. The man who has a consider- 
able capital can of course afford to take this additional 
risk far more easily than can one with limited funds. 
It is usually a mistake for an investor whose capital is 
much under $25,000 or $30,000 to invest any part of his 
principal, even in moderate degree, with a view of seeking 
chiefly the benefits of unusual appreciation, but where a 
man ha- $100,000 or more, he can sometimes justly give 
a little more attention to possibilities of profit on his in- 
vestment without going into the field of speculation to 
too great an extent. On page 88 1 suggest a plan \>>r a 
sum of this amount : 

(87 ) 



88 How to Invest Money Wisely 

Suggested plan for the investment of a principal sum 
of $100,000, diversification being the primary object, but 
possibilities of appreciation being considered also. 

Prices of 

1. Government Issues: Sept., 1912 Cost 

$5,000 Japanese Imperial 4>4s, due 1925 at 92 $4,600 

5,000 New York City (new) 4^s at 101 5,050 

2. Railroad Bonds: 

$10,000 Rio Grande Western first 4s, due 1939 at 83 $8,300 
10,000 Kanawha & Michigan second 5s, due 

1927 at 97 9,700 

3. Railroad Stocks: 

$10,000 (100 shares) Norfolk & Western 

(6%) common at 116 11,600 

10,000 (100 shares) Northern Pacific (7%) at 126 12,600 

4. Public Utility Bonds: 

$5,000 Virginia Ry. & Power 5s, due 1934... at 96 4,800 

5,000 Portland (Oreg.) Ry. first and ref. 

5s, due 1930 at 98 4,950 

5. Industrial Bonds: 

$5,000 Corn Products 5s, due 1934 at 96 4,800 

5,000 United States Realty 5s, due 1924 at 90 4,500 

5,000 Westinghouse 5s, due 1931 at 95 4,750 

5,000 Republic Iron & Steel 5s, due 1940. . . .at 91 4,550 

6. Industrial Stocks: 

$10,000 (100 shares) Railway Steel Spring 

pfd. (7%) at 100 10,000 

10,000 (100 shares) Amer. Beet Sugar pfd. 

(6%) at 98 9,800 

Total $100,000 

While there is a moderate speculative element to be 
found in parts of the above list, yet as a whole the issues 
are to be regarded as fairly high grade, and the chances 



Plans for Investing Larger Sums 89 

of growth in values are very good, as the following com- 
ments will indicate. 

1. Government Issues: Both of these issues are en- 
tirely secure. The credit of the Japanese government 
has been steadily improving since the Russo-Japanese 
war, and these bonds, which are thoroughly protected in 
even- way, should gradually work towards their par value 
within the next ten years. It will be noted that they now 
have but thirteen years to run. The New York City is- 
sue, of course, stands on a high investment plane. 

2. Railroad Bonds: The Rio Grande Western first 
4s, due 1939, are an absolute first lien on the main lines 
of the Denver & Rio Grande system from Crevasse, Col., 
to Ogden, Utah. This line has great strategical value, 
passing through Salt Lake City, and forming the connec- 
tion of the original Denver & Rio Grande Railroad with 
the Western Pacific, the Southern Pacific and the Ore- 
gon Lines of the Union Pacific system. The bonds are 
followed by two junior liens. The Kanawha & Michigan 
second 5s have only fifteen years to run, and the earn- 
ings of the road give the issue a margin of safety of 70 
per cent. I regard both of these bonds as "high-grade" 
and believe they will tend to rise considerably in value 
during the next few years. 

3. Railroad Stocks: The future outlook of Norfolk 
& Western is most favorable. The common stock is 
rapidly becoming a prime investment issue, and in the 
course of a few years should be raised to a still higher 
dividend basis. As for Northern Pacific, I think it is 



90 How to Invest Money Wisely 



probably as sure of maintaining its 7 per cent, dividend as 
is Chicago & North Western, which sells fifteen points 
higher. It is an attractive investment of its class. 

4. Public Utility Bonds: While not of the highest 
grade, the Virginia Railway & Power 5s, due 1934, are 
excellently secured, and the equity back of them is 
steadily growing. They have but twenty-two years to 
run, which is an argument in their favor. Portland 
Railway refunding 5s are really a very strong bond. 

5. Industrial Bonds: Each of the issues included in 
this classification has features of strength to commend 
it. They are all of relatively short maturities, return a 
large yield, and are protected by liberal margins of 






safety. 

6. Industrial Stocks: The two industrial preferred 
stocks included above seem most attractive investments 
of this type. Railway Steel Spring preferred should, in 
the course of a few years, sell nearly as high as United 
States Steel preferred, while American Beet Sugar pre- 
ferred is one of the prime 6 per cent, preferred indus- 
trials. 

This investment scheme, at recent market prices, 
would amount to $100,000, and the straight yield on the 
money would be $5,337.50 or 5^3 per cent, on the cost. 
It will be noted that the proper precautions in the matter 
of selecting issues of widely different geographical loca- 
tions and separate managements, have been strictly ad- 
hered to. Of the government issues, one is dependent 



Plans for Investing Larger Sums 91 



on the prosperity of a foreign nation, and the other on 
the prosperity of the chief American city; the railroad 
bonds and stocks are widely distributed ; the same thing 
is true of the public utility bonds. Of the industrial 
bonds and stocks, each issue is on a distinct property and 
in a distinct line of industry. Further than this, the 
possibility of profit in the principal is not merely depend- 
ent on a trade or industrial boom. Profits will accrue 
in time, on the bond issues, simply because none of them 
are a great many years from the date of maturity, and 
they are nearly all selling today below their face values. 
Whether we have a boom or a depression, the position of 
these issues should tend to improve. The stock issues, 
on the other hand, are all more responsive to trade con- 
ditions, but as they are well spread throughout the coun- 
try and all dependent on different influences, the chances 
of all of them being equally affected in the event of a 
depression are very remote. 

There are many investors of considerable means, who, 
while they of course do not forget the importance of 
thoroughly protecting their principal, are willing to pur 
at least a portion of their capital in semi-speculative is- 
sues. They do not want to "speculate" in the ordinary 
sense of the term, and are far from wishing to buy secu- 
rities on margin. But what interests them is some method 
whereby they can get substantial benefit from a general 
upward swing in prices. 

In the following exhibit I have attempted to stlggesl 
a plan whereby a fund of about $100,000 can be safely 
distributed among various issues which appear, for spe 



92 How to Invest Money Wisely 

cial reasons, to be cheap at the present time, and to have 
good possibilities of increases in value in the next "bull" 
movement. 

Suggested plan for a "semi-speculative" investment 
scheme, with a capital sum of $100,000. 

Prices of 

1. Railroad Bonds: Sept., 1912 Cost 

$10,000 St. Louis & San Francisco gen. lien 

5s, due 1927 at 85 $8,500 

10,000 St. Louis, Iron Mountain & So., 

Unif. and Ref. 4s, due 1929 at 78 7,800 

2. Railroad Stocks: 

$10,000 (100 shares) Southern Pacific (6%) at 112 11,200 
10,000 (100 shares) Kansas City So. pfd. 

(4%) at 60 6,000 

3. Public Utility Stocks: 

$10,000 (100 shares) Brooklyn Rapid Tran- 
sit (5%) at 91 9,100 

10,000 (100 shares) Consolidated Gas (6%) at 145 14,500 

4. Public Utility Bonds: 

$10,000 Inter-Metropolitan 4^s, due 1956 at 82 8,200 

5. Industrial Bonds: 

$10,000 Colorado Industrial 5s, due 1924 at 82 8,200 

10,000 Distillers Securities 5s, due 1927 at 75 7,500 

6. Industrial Stocks: 

$10,000(100 shares) International Har. com. 

(5%) at 120 12,000 

10,000 (100 shares) Amer. Malting pfd. 

(4%) at 65 6,500 

Total $99,500 

As in the case of the first exhibit, full consideration is 
given to the matter of sound investment diversification, 



Plans for Investing Larger Sums 93 

and no very large portion of the total sum is placed in 
any one issue or in any one type of security. That all 
of these issues have their special features of attractive- 
ness is shown by the following comments. 

1. Railroad Bonds: The St. Louis & San Francisco 
general lien 5s, due 1927, are admittedly a "semi-invest- 
ment" issue, but they are much stronger in position than 
was the case a couple of years ago, when they were sel- 
ling above 90. The system has been making unusual 
progress on its physical side during the past eighteen 
months, and its outlook to-day is most favorable. These 
bonds are protected by a good margin of safety, the 
yield on the cost is a handsome one, and they have only 
fifteen years to run. The unifying and refunding 4s of 
the St. Louis, Iron Mountain & Southern are secured on 
some of the best mileage in the general system, and now 
that plans have been arranged for providing for all future 
financing on this road, the position of these bond- should 
gradually improve. As they mature in 1929, the present 
low price makes them attractive. 

2. Railroad Stocks: Southern Pacific, in spite of its 
setbacks in earnings during the past year, still has great 
possibilities, and the crop outlook in its territory this year 
is unusually favorable. If we have any "bull" move- 
ment the coming winter, this stock should rise substan- 
tially. The investment position of Kansas City Southern 
while not of the highest, gives assurance of permanent 
dividend disbursements. 



94 How to Invest Money Wisely 

3. Public Utility Stocks: That Brooklyn Rapid 
Transit will gradually work higher, now that the subway 
situation has been settled, seems a foregone conclusion. 
Consolidated Gas, in spite of its rise of the past two 
years, should continue to be benefited by the growth of 
New York City, and increase its profits steadily for 
many years to come. 

4. Public Utility Bonds: I regard the Interborough- 
Metropolitan 4^s as a very cheap bond of this type, 
and as the credit of the company improves (as it will 
during the coming few years) these bonds should steadily 
work up towards 90. 

5. Industrial Bonds: The Colorado Industrial 5s are 
of course "semi-speculative" or they would not be selling 
at so low a figure. But nevertheless the fact must not 
be overlooked that the property back of the issue is of 
great value, and any real boom in the iron and steel trade 
will tend to force these bonds up further in price. Dis- 
tillers Securities Ss I regard as attractive at the price. 
In the poorest years the interest on the issue has always 
been easily earned, and the added and growing equity in 
the U. S. Industrial Alcohol Company will benefit this 
company materially during the next few years. 

6. Industrial Stocks: In this classification I have se- 
lected International Harvester, in spite of its high price, 
because of the fact that if the company is forced to dis- 
solve, we are likely to see a further material apprecia- 
tion in the price. American Malting preferred I con- 



Plans for Investing Larger Sums 95 

sider still cheap as a speculative investment. There are 
about 20 per cent, in accumulated dividends which must 
sooner or later be paid, and the asset value of the stock 
is well above $75 per share, regardless of these dividends. 
The total cost of the purchases, at recent prices, in 
this list would be $99,500, and the annual yield would 
amount to $5,350, or over 5 T 3 per cent., independently of 
any appreciation. ( )f course, the chances of profit are 
greater in this list than in the other, but naturally the 
speculative risk is greater. At the same time, the list 
is so worked out that the ordinary dangers are reduced 
to a minimum. 












PART THREE 
CLASSES OF INVESTMENTS 



XIII 

Some Typical Industrial Bonds 

I -electing industrial bonds for investment. I 
culties are generally far greater than in the case of 
either steam railroad or public utility issues. In 

the latte it is usually a simple matter t< tain 

the character of the property which really stands hack of 
the issue, but in the case of the ordinary industrial bond 
this is not so often possihle. Reports of industrial eol- 
ations are frequently too brief and unsatisfactory 
full descriptions of property and assets are not generally 
presented to the stock or bond holde: 

In a very real sense, then, the strength and position 
an industrial bond depends on the reve; 

lie business itself; and the question of stability and 
permanence in this earning power takes on great impor 
tance. A public utility bond i^ often secure simply 
ise of the franchise value or location, and the margin 
safety in earnings i^ the only vital thing. Bu1 Eran 
chi-e values do not apply as a general thing to industr 
and benefits due to location and environment are not 
always of such great importance. The really vital point 

the investor to ascertain is the profit produ 
power, and the things which are related to tl 

(99) 



100 How to Invest Money Wisely 



the character of management, business policy, stability 
of markets, etc. 

On the following pages I present brief records of 
twenty-six typical industrial bonds which are well known 
in the New York market. It will be noted that as a 
general thing the yield is in excess of 5% and some is- 
sues yield at current prices over 6%. Thus, while the 
better grade of steam railroad issues usually return from 
4 to 4yi% to the investor, and public utilities from AV 2 
to 5%%, the same general classes of industrials enable 
the holder to secure a return of from 5 to 6%. It does 
not necessarily follow, however, that an industrial issue 
returning 5}4% is a weaker bond than some public util- 
ity which yields 5%, or some railroad bond which yields 
but 4%%. There are many industrial issues with very 
heavy assets back of them, and protected by very high 
margins of safety, which yield S J / 2 % or more on the in- 
vestment. Some of those listed below are in this class. 

Adams Express Company collateral debenture 4s ; 
dated March 1, 1898; due March 1, 1948. Outstanding 
$12,000,000. These bonds are not a mortgage but are 
secured by deposit of income-producing bonds of rail- 
roads and other companies, the par and market values of 
which are in excess of the issue. The net earnings in 
recent years of the Adams Express Company have been 
from four to six times the amount of its total fixed 
charges. In event of liquidation these bonds would 
surely receive their face value. At the recent price of 
84 they yield, if held to maturity, nearly 5% on the 
money. 






Some Typical Industrial Bonds 101 

American Agricultural Chemical Company first mort- 
gage convertible 5s; dated October 1, 1908; due October 
1, 1928. Outstanding, $10,579,000. Convertible at hold- 
er's option into preferred stock, at any time. Sinking 
fund will retire bulk of issue by maturity. Recent net 
profits of the company have averaged seven times the 
interest requirement. A very attractive investment at 
present price of 101, yielding ±.\)'2 ( < . 

American Cotton Oil Company 20-year 5s, dated May 
1, 1911; due May 1, 1931. Outstanding, $5,000,000. 
Callable at 105. These bonds are somewhat speculative 
and not secured by mortgage, but the average earnings 
for a series of years show charges earned several times 
over. The vield at the present price of 94 is about 

American Writing Paper Company first 5s, dated 
July 1, 1899; due July 1, 1919. Outstanding, $13,904,000. 
Sinking fund of $100,000 per annum tends to strengthen 
this issue as it nears maturity. While not in the strong 
investment class, the bonds appear reasonably cheap at 
the present price of 90, the yield being 6.80% per annum. 
This high yield is due to the approaching maturity. 

Armour & Co. real estate mortgage 4 T jS, dated June 
1, 1909; due June 1, 1939. Outstanding, $30,000,000. 
This is a very high grade bond, being protected by valu- 
able real estate and a heavy earning power. Even in 
the poor year, 1911, the interest was earned five times 
over. At the present price of 91}^ the yield is 5.05%. 



102 How to Invest Money Wisely 

Bethlehem Steel Company first extension mortgage 5s, 
dated January 2, 1906; due January 1, 1926. Outstand- 
ing, $8,000,000. Callable at 105. These bonds are well 
secured, although subject to a prior mortgage on a por- 
tion of the property. The net profits of the company 
were in 1911 several times the interest requirement on 
this and the prior issue. At the present price of 97 the 
yield is about 5.30%. 

Central Leather Company first lien 20-year 5s, dated 
April 1, 1905; due April 1, 1925. Outstanding, $36,764,- 
150. The issue is secured by direct or collateral mort- 
gage on all the properties of the company, and after 
1913, when about $3,400,000 debentures are retired, it 
will be the only bond issue on the property. The earn- 
ings of the Central Leather Company fluctuate radically, 
but the assets back of these bonds seem to justify a 
favorable opinion regarding them. At the present price 
of 95 the yield is about 5.55%. 

Colorado Fuel & Iron Company general mortgage 5s, 
dated February 1, 1893; due February 1, 1943. Out- 
standing, $5,558,000. Callable at 105. This is a direct 
obligation of the company, covering the entire property 
by mortgage, subject only to two small prior liens on a 
portion. The value of the property covered is many 
times in excess of the issue, and in normal years the in- 
terest on these bonds has been earned four or five times 
over. They are to be regarded as entirely secure. The 
current quotation is 100, giving a yield of 5%. 

Corn Products Refining Company first mortgage 5s, 



Some Typical Industrial Bonds 103 

dated May 1, 1909; due May 1, 1934, Outstanding, 

$5,749,000. Callable at 105. Sinking fund retires 2 

of total issue annually. These bonds are subject to two 
prior liens on portions of the properly, but are them- 
selves a direct obligation o\ the company and are backed 
by assets far in excess o\ their face value. The earn- 
ings in recent years have usually been from four to live 
times the interest requirement. At the present price of 
94 the bonds yield 5.45% and look attractive. 

R. J. du Pont De Nemours Powder Company deben- 
ture 4^s, dated June 1, 1906; due June 1, 1936. Call- 
able at 110. Not a mortgage, but have no liens ahead, 
and are protected by an enormous margin of safety. 
One of the best industrial issues in the market. They 
yield, at the present price of 90, about 5*4%. 

htternational Nickel Company 30-year .sinking fund 

5s, dated April 1, 1902; due April 1, 1932. Outstand- 
ing. So, 162. 154. Sinking fund retires $150,000 annually. 
The property covered is many times in excess of the 
mortgage and the earnings in recent years have been 
from seven to ten times the interest requirements. An 
attractive investment. Price at present about 100, yield- 
ing 5%. 

International Paper Company convertible mortgage 
dated January 3, 1905; due January 1. 1935. Outstand- 
ing, S5, 343,000. Convertible into preferred stock at 

holder's option on any interest date prior to 1917. Sink- 
ing fund retires 2 ( '< of issue annually. While subject to 



104 How to Invest Money Wisely 



an underlying bond, this issue has a large equity in the 
property and the earnings recently have equalled two and 
one-half times the interest requirement. Although more 
speculative than a number of others named, the bonds 
are to be looked upon as attractive at the present price of 
about 91, at which the yield is 5.70%. 

International Steam Pump Company first lien 20-year 
sinking fund 5s, dated September 1, 1909; due Septem- 
ber 1, 1929. Outstanding, $10,000,000. Callable at 103. 
Sinking fund will retire $6,000,000 prior to maturity. 
These bonds are secured by direct or collateral mortgage 
on all the company's property and should be regarded as 
entirely secure. Earnings in recent years have been from 
three to four times interest requirements. At the present 
quotation of 92 the yield is about 5.75%. 

Lackawanna Steel Company first mortgage convertible 
5s, dated April 1, 1903; due April 1, 1923. Outstanding, 
$15,000,000. Convertible into common stock at par, at 
the holder's option, at any time prior to April 2, 1915. 
The bonds are a direct first or collateral mortgage on all 
the company's property and are protected by a heavy 
equity. Earnings in recent years have averaged about 
seven times the interest requirement, and in the poor year 
1911 were three times the requirement. An excellent 
investment at the present price of 94%, the yield being 
about 5.70%. 

Morris & Co. first mortgage sinking fund 4%s, dated 
July 1, 1909; due July 1, 1939. Outstanding, $12,100,- 



Some Typical Industrial Bonds 105 

000. Callable at 103. Sinking fund will retire bulk of 
issue prior to maturity. The physical property back of 

this issue is well in excess of the mortgage and the earn- 
ings during recent years have been several times the in- 
terest requirement. At 91, the present price, the bonds 
yield 5.70< 

National Enameling & Stamping Co. refunding first 
mortgage real estate 5s, dated June 1, 1909 J due June 1, 

!9. Outstanding, $3,278,000. Sinking fund will re- 
tire entire issue prior to maturity. Although this busi- 

5S is subject to keen competition, the bonds have i 
ets back of them, and the earnings generally average 
from five to six times the interest requirement. At 93 

the bonds yield 5.65%. 

Xational Tube Company first mortgage 5s, dated May 

1. 1912; due May 1, 1952. Outstanding, $10,000,1 
Callable at 105 on and after November 1, 1916. Sinking 
fund retires \°/o annually after May 1, 1916. Tl 
bonds stand on a very strong investment ba< they 
are secured on valuable property and are guaranteed 
principal and interest by the United St 

poration. At 99 1 o, the present price, the yield is over 
5%. 

Otis Elevator Company convertible debenture 
dated April 1, 1910; due April 1, 1920. Outstanding, 
"00,000. Convertible into common stock at par 

\pril 1, 1913. Callable at 102y 2 On and after 
April 1, 1913. This is a direct obligation <>f the com 



106 How to Invest Money Wisely 

pany and there are no mortgages ahead of it. The earn- 
ings have recently averaged about eight times the in- 
terest requirement. At 100, the present quotation, the 
yield is 5%. 

Railway Steel Springs Company first mortgage La- 
trobe Plant sinking fund 5s, dated January 1, 1906; due 
January 1, 1921. Outstanding, $3,672,000. Callable at 
105. Sinking fund retires about $135,000 per year. The 
bonds are secured by first lien on an extremely valuable 
part of the company's property and are protected by a 
very wide equity. Earnings in recent years have been 
over six times all interest requirements. A very attract- 
ive investment issue at the present price of 98, yielding 
5.27%. 

Railivay Steel Springs Company first mortgage Inter 
Ocean Plant sinking fund 5s, dated October 1, 1911 ; due 
October 1, 1931. Outstanding, $3,500,000. Callable at 
105. Sinking fund beginning in 1914 will retire about 
$125,000 per annum. Like the other mortgage, these 
bonds are protected by a heavy equity and liberal mar- 
gin of safety. At 96^, which is the present quotation, 
the return is about 5.25%. 

Republic Iron & Steel Co. 10-30 year sinking fund 
first mortgage 5s, dated April 1, 1910; due April 1, 1940. 
Outstanding, $11,305,000. Sinking fund will retire all 
bonds at or before maturity. The replacement value of 
the company's property is far in excess of the face value 
of these bonds and there are no prior or underlying liens. 






Some Typical Industrial Bonds 107 

Earnings even in the poorest wars have been several 

times all interest requirements. An attractive investment 
at 93, the yield being about 5.50%. 

Union Bag & Paper Co. first mortgage 25-year sinking 
fund 5s, dated June 28, 1905; due July L, 1930. Out 
standing, $3,861,000. Callable at 105. Sinking fund re- 
tires 2% of issue per annum. This issue is secured by a 

first lien on all the company's property, subject only to 
a small assumed mortgage. The equity is heavy and 
earnings have recently averaged over five times the in- 
terest requirements. At the current price of about 92% 
the yield is about 5.70%. 

United States Realty & Improvement Co. 20-year 
debentnre 5s, dated July 1, 1904; due July 1, 1924. < Out- 
standing, $11,930,000. Callable at 105. These bonds are 
not secured by mortgage but are a direct obligation, and 
the equity is a heavy one. Earnings have in recent years 
steadily averaged from two and one-half to three times 
the intere-t requirements. In view of the approaching 
maturity, the bonds look attractive at 90, at which the 
yield is 6.25%. 

United States Steel Corporation 10-60 year sinking 
fund 5s, dated April 1, 1903; due April 1, 1963. Out- 
ding, $189,346,500. Callable at 110 after April 1, 
1913. Sinking fund will retire about SI, 000,000 annu- 
ally after April 1, 19J3. These bonds are protected by a 
very heavy equity and stand on a strong investment 
plane. At 102%, the present price, the yield is about 
4.90' 



108 How to Invest Money Wisely 

Victor Fuel Company first mortgage sinking fund 5s, 
dated July 1, 1903; due July 1, 1953. Outstanding, 
$1,871,000. Sinking fund, two cents per ton on all coal 
mined. The bonds are secured by first mortgage on over 
21,000 acres of coal lands in Colorado and by valuable 
collateral. Earnings in recent years have been over four 
times the interest requirements on this issue and on the 
Victor-American Fuel bonds. This company is a part of 
the latter concern. The yield at the present price of 85 
is about 6%. 

Virginia Carolina Chemical Company first mortgage 
15-year 5s, dated November 2, 1908; due December 1, 
1923. Callable at 105. Sinking fund retires $300,000 
per annum. The property which this issue covers by 
first mortgage is far in excess of the amount of the issue 
and the earnings have always shown a very heavy mar- 
gin of safety. At present quotation of 98 the bonds yield 
about 5.20%. 

The above are of course only a limited number of in- 
dustrial issues, selected more or less at random. There 
are many other good ones in the market. Nevertheless 
those listed above represent a great diversification of in- 
dustries, and a composite investment confined to indus- 
trials and divided in equal amounts among the above 
issues would be very well distributed. Such an invest- 
ment fund would show an average yield of nearly 5^%, 
which is certainly very satisfactory in view of the gen- 
eral strength of the issues. 



XIV 
Selected Public Utility Bonds 

IN these times of high commodity prices and general 
high costs, the temptation to the investor to go into 
untried fields in order to increase his income is 
very strong. One of the great fields of investment which 
has broadened greatly in recent years is the public utility 
held. Here it is that one can find opportunities for the 
intelligent investment of funds on a much more attractive 
basis than can nowadays be secured in the railroad or 
municipal fields. But while the field is a broad one, the 
pitfalls are many and dangerous, and because of the lack 
of completeness and uniformity in the matter of statistical 
information and other data, it is much more difficult to 
make safe and intelligent selections than in the more 
thoroughly established fields. 

Nevertheless, it must be agreed that the public utility 
field is a most inviting one for the modern investor, and 
as a whole has elements of safety which cannot be found 
in the railroad or industrial fields. Where a public utility 
concern has the advantages of location, and gets the 
lily accruing benefits of increasing population, the 
potential value of its securities is often of great moment. 

( 109 ) 



110 How to Invest Money Wisely 

For example, a street railway bond, which, half a dozen 
years ago, may have been quite speculative, can easily 
have reached a high investment plane provided that pop- 
ulation has increased steadily and the outlook for further 
growth is strong. Only a decade ago certain of the bond 
issues on the Brooklyn Rapid Transit system were more 
or less doubtful. But with the vast growth of traffic of 
the past ten years the earnings of this system have stead- 
ily mounted and all the divisional bonds today are on a 
strong investment plane, and even the junior issues are 
entitled to a good investment rating. 

Of course, as I pointed out above, discrimination is 
most important in making investment selections in this 
field. Not all towns and cities have grown steadily in 
population in recent years; not all trolley and lighting 
companies have the franchise strength that is desirable; 
and a very large number are, as in the case of railroads 
and industrials, very heavily over-capitalized. 

Below I furnish a diversified list of public utility bonds 
of various types. All of these bonds are not necessarily 
high grade, although some are ; but as a whole, they have 
genuine investment strength. In view of the attractive 
prices at which some of these issues sell, and the short- 
ness of maturity of all of them, it seems to me that a 
very good composite investment scheme could be worked 
out with this list. There are fifty issues to be described 
in all, and if one were to divide an investment fund 
equally between them, he would come out very well in- 
deed, as the summary will show; and he would reduce 
the risk to a minimum. 



Selected Public Utility Bonds 111 

American Telephone & Telegraph Co. collateral trust 
4s, due July 1, 1929. Interest Jan. & July at Bankers 
Trust Co., New York. The issue is protected by a heavy 

margin oi safety and valuable collateral, and at the pres- 
ent price of 90 ] 4 yields (if held to maturity), 4.85 per 
cent, on the investment. A very safe bond. 

Atchison Railway, Light & Power Co. first & refund- 
ing 5s, due Nov. 1, 1935. Interest May & Nov. at Fed- 
eral Trust Co., Boston. Company owns the entire elec- 
tric light, street railway and gas business of Atchison, 
Ks., and these bonds are secured by absolute first lien. 
At 95 the yield is 5.40 per cent. An excellent investment 
issue, running 23 years from date. 

Atlantic City Electric Co. first & refunding 5s, due 
March 1, 1938. Interest March & Sept. at Girard Trust 
Co., Philadelphia. Callable at 110 on or after March 1, 
1913. This is a subsidiary of the American Gas & 
Electric Co. which guarantees the bonds. Franchises 
are strong and equity is heavy. At 93 the yield is 5.50 
per cent. 

Burlington (la.) Railway & Light Co. first 5s, due 
March 1, 1932. Interest March & Sept. at Equitable 
Trust Co., Xew York. Callable at 105. The issue 
should be regarded as a strong one, as it is secured by 
first lien on replacement value far in excess of the issue. 
The yield at 95 is about 5.40 per cent. 

Carolina Power & Light Co. first 5s, due Aug. 1, 1938. 
Interest Feb. & Aug. 1, at Standard Trust Co., New 



112 How to Invest Money Wisely 

York. Callable at 105 after Aug. 1, 1913. Company 
operates the street railway, gas and electric light service 
of Raleigh, N. C, and is a constituent company of the 
Electric Bond & Share Co. (General Electric interests). 
Franchises are strong, and there is a large margin of 
safety. An attractive bond at the price. At 92 the yield 
is about 5.65 per cent. 

Cincinnati Gas Transportation Co. first 5s, due July 1, 
1933. Interest Jan. & July 1, at Cincinnati Trust Co. 
Callable at 110 after July 1, 1913. Company is leased 
to Columbia Gas & Electric Co. which guarantees all the 
bonds. Sixty per cent, of the issue are also guaranteed 
by the Cincinnati Gas & Electric Co. These bonds are a 
first mortgage and appear to be well protected. They 
are, in view of the price, to be regarded as a good in- 
vestment of this type, although not of the highest grade. 
At 89 the yield is about 5.90 per cent. 

Columbia Railway, Gas & Electric Co. first 5s, due 
July 1, 1936. Interest Jan. & July at Columbia-Knicker- 
bocker Trust Co., New York. Company owns all the 
public service properties in Columbia, S. C. Franchises 
are perpetual and the bonds are protected by a heavy 
margin of safety. At 94 the yield is about 5.45 per cent. 

Consumers Power Co. first lien & refunding 5s, due 
Jan. 1, 1936. Interest Jan. & July at Harris, Forbes & 
Co., New York, or Harris Trust & Savings Bank, Chi- 
cago. Callable at 105 after January 1, 1916. This com- 
pany is controlled by the Commonwealth Power, Rail- 



Selected Public Utility Bonds L13 

& Light Co., and these bonds are well secured either 

directly or by deposit of collateral on valuable property. 
The margin of safety is a heavy one. and the investment 
position of the issue a strong one. At 96, with 24 y< 
to run, the yield is about 5.30 per cent. 

Danz'illf, Urbana & Champaign Railway Co. first 5-. 

due March 1, 1923. Interest March & Sept. at Northern 
Trust Co.. Chicago. Callable at 105. Company operates 
electric railways connecting cities of Danville. Urbana & 
Champaign. 111., with branches, and the bonds are guar- 
anteed by the Danville Street Railway & Light Co. and 
the Urbana & Champaign Railway, Gas & Electric ( 
A well secured issue. At 96 the yield is about 5.50 per 
cent. 

East St. Louis & Suburban Co. collateral trust 5s, dtie 
April 1, 1932. Interest April & Oct. in St. Louis or 
Philadelphia. Callable at 105. This is a holding com- 
pany which controls a large system of electric railways 
in Last St. Louis, 111., and vicinity. These companies 
have valuable franchises and the bonds are strongly pro- 
tected by a wide margin of safety. A very attractive in- 
vestment at the price. At 96 the yield is about 5.35 per 
cent. 

Eastern Oregon Light & Poiver Co. first & refunding 
5s, due October 1, 1929. Interest April & October at 
Fidelity Trust Co.. Philadelphia. Callable at 105. The 
franchises of this company an :. and the earnings 

of the company justify a good rating fur the bond-. At 
97, the yield is about 5.28 per cent. 






114 How to Invest Money Wisely 

Fort Smith Light & Traction Co. first 5s, due March 
1, 1936. Interest March & Sept. in New York or Chi- 
cago. Callable at 105. Company owns all the street 
railways in the city of Fort Smith, Ark., and all the elec- 
tric and gas properties in Fort Smith and Van Buren. 
The bonds are protected by a wide margin of safety and 
appear entirely secure. At 91, the yield is about 5.70 
per cent. 

Fort Worth Power & Light Co. first 5s, due Aug. 1, 
1931. Interest Feb. & Aug. in New York or Cleveland. 
Callable at 105. The bonds are a first lien on the entire 
electric power and lighting business of Fort Worth, 
Texas, and are strongly protected. At 96 the yield is 
about 5.35 per cent. 

Helena Light & Railway Co. first 5s, due Sept. 1, 1925. 
Interest March & Sept. 1, at Columbia-Knickerbocker 
Trust Co., New York. Callable at 105. Company owns 
and operates the entire public utility business of Helena, 
Montana, on franchises which extend to 1926. Sinking 
fund will retire bulk of issue by maturity. There is a 
wide margin of safety in earnings, and the bonds should 
have a good rating. At 90 the yield is over 6 per cent. 

Indiana, Columbus & Eastern Traction Co. general & 
refunding 5s, due May 1, 1926. Interest May & Nov. 
in Philadelphia. Callable at 105. These bonds are guar- 
anteed by the Ohio Electric Railway and although sub- 
ject to two prior liens, are in a very good investment 
position. At 92 the yield is about 6 per cent., as the 
bonds have only 14 years to run. 






Selected Public Utility Bonds 115 

Ironwood & Bessemer Railway & Light Co. first 5s, 
due Feb. 1, 1936. Interest Feb. & Aug. 1, at American 
Trust Co., Boston. Callable at 104 on and after Feb. 1, 
1916. The property back of this issue appears to be 
amply sufficient, and the company shows a good surplus 
above charges. At 92 the yield is about 5.65 per cent. 

Jackson (Miss.) Light & Traction Co. first 5s, due 
April 1, 1922. Interest April & Oct. 1, in New York. 
Callable at 105 on April 1, 1914, and thereafter. This 
company does the entire electric light, power, gas and 
street railway business of Jackson, Miss., and the earn- 
ings show a heavy margin of safety. At 96 the yield is 
about 5.55 per cent. 

Jacksonville (Fla.) Traction Co. first consolidated 5s, 
due March 1, 1931. Interest March & Sept. at State 
Street Trust Co., Boston. Callable at 105. Company 
does entire street railway business of Jacksonville, Fla., 
under franchise extending to 1932. The bonds are sub- 
ject to a first mortgage but enjoy a heavy margin of 
Safety. At 95 they yield about 5.40 per cent. 

Jolinstozen (Pa.) Passenger Railway Co. refunding 4s, 
due Dec. 1, 1931. Interest June & December at Johns- 
town Trust Co.. Johnstown, Pa. Callable at 105. This 
company operates street railways in city of Johnstown, 
Pa., and is one of the constituent companies of the Amer- 
ican Railways Co. of Philadelphia. It is itself leased to 
the Johnstown Traction Co. until 1928. Franchises are 
perpetual. Although there is a small underlying mort- 
gage, the margin of safety is a liberal one, and the bonds 



116 How to Invest Money Wisely 

are very attractive at the price of 89, at which the yield 
is about 5 per cent. 

Kansas City (Mo.) Gas Co. first 5s, due April 1, 1922. 
Interest April & October in New York. This is one of 
the constituent companies of the United Gas Improve- 
ment Co. of Philadelphia, and the bonds are in a very 
strong investment position. They have but ten years to 
run and at 98 yield about 5.25 per cent. 

Madison River Power Co. first 5s, due Feb. 1, 1935. 
Interest Feb. & Aug. at United States Mortgage & Trust 
Co., of New York. Callable at 105. Company is con- 
trolled by Butte Electric & Power Co. which guarantees 
the bonds. This is to be regarded as a very strong issue, 
and at the price of 94% yields about 5.45 per cent. 

Michigan United Raihvays Co. first & refunding 5s, 
due May 1, 1936. Interest May & November at Colum- 
bia-Knickerbocker Trust Co., New York. Callable at 
110 after May 1, 1916. While these bonds have several 
prior liens ahead of them, they are in a strong and stead- 
ily improving position. The bonds are entitled to a 
strong rating. At the present price of 94, the yield is 
about 5.45 per cent. 

Milwaukee Gas Light Co. first 4s, due May 1, 1927. 
Interest May and November at J. & W. Seligman & Co., 
New York. This is a well-seasoned bond which is 
secured by practically first lien on the property of the 
company, which is one of the constituent companies of 



Selected Public Utility Bonds 117 

the American Light & Traction Co. Callable at 110. At 
91 (the recent price) the yield is about 4. S3 per cent. 

New Orleans Railway & Light Co. general due 

July 1, 1935. Interest January and July at New York 

Trust Co., New York. Company is controlled by Ameri- 
can Cities Co. and bonds are well protected by a wide 
margin of safety, although subject to various underlying 
liens. Callable at 105. At price of 87 the yield is about 
5.50 per cent. 

New York & Richmond Gas Co. first 5s, due May 1, 
1921. Callable at 110. Interest May and November at 
Liberty National Bank, New York. The issue is secured 
by first lien, and as it has but nine years to run, is very 
attractive at the price of 96, the yield being about 5.60 
per cent. 

Norfolk & Portsmouth Traction Co. first 5s, due June 
1, 1936. Interest June and December 1, at Trust Co. of 
North America, Philadelphia. Callable at 110. This 
company was in 1911 consolidated with Virginia Kail- 
way & Power Co., which has assumed the bonds. They 
are well protected in equity and earnings, and look attr 
ive at the price of 88, the yield being about 5.90 per cent. 

Northern Indiana Gas & Electric Co. first and refund- 
ing 5s, due April 1, 1929. Interest April and October in 
New York and Chicago. Callable at 103. This IS one of 
the constituent companies of the United Gas [mpr< 
ment Co., and the bonds are strongly protected. At 90, 
the yield is about 5.90 per cent. 



118 How to Invest Money Wisely 

Northern Texas Traction Co, first 5s, due January 1, 
1933. Interest January and July in New York or Cleve- 
land. Callable at 105 on or after January 1, 1913. These 
bonds are prior in lien to the Northern Texas Electric 
Co. collateral trusts 5s, being secured by first mortgage on 
the entire electric railway system of the company. The 
lines are located in Fort Worth and Oak Cliff, Texas, 
with an interurban line of about 33 miles between Fort 
Worth and Dallas. The chief franchise runs to 1973. 
The bonds are protected by a very wide margin of safety, 
and are to be regarded as an attractive investment at 
current prices. At the present price of 101 the yield is 
nearly 5 per cent. 

North Carolina Public Service Co. first and refunding 
5s, due April 1, 1934. Interest April and October 1 in 
New York. Callable at 105 on three weeks' notice. 
Except for a small prior lien on a portion of the property, 
these bonds are a first mortgage on the entire utility 
system of Greensboro and High Point, N. C, under 
franchises which all extend beyond the maturity of the 
bonds. A sinking fund will provide for a large part of 
the issue before maturity, and as the bonds are protected 
by a liberal margin of safety, they seem a desirable 
investment at the price of about 90, the yield being about 
5.80 per cent. 

Northern Illinois Light & Traction Co. first 5s, due 
July 1, 1923. Interest January and July 1 at American 
Trust Co., Boston. Secured by first lien on entire prop- 
erty of the company, which operates a street railway, 



Selected Public Utility Bonds 119 

lighting and power plant in Ottawa, 111., under franchises 
which extend beyond the redemption date. This is a 
subsidiary company of the Western Railway $ Lighting 
Co. As the bonds have but 11 years to run, they look 
attractive at the price of 95, the yield being about 5.65 
per cent. 

Northern Ohio Traction & Light Co. first consolidated 
4s and 5s, due January 1, 1933. Interest January and 
July in Xew York or Cleveland. This bond is secured 
subject to about $3,000,000 of prior liens, but is protected 
by a good equity, and stands well as one of the divisional 
liens of the system. The bulk of the issue carries 4 per 
cent interest, and at the price of 74 yields 6.20 per cent. 
As the bonds have but 21 years to run, they look attract- 
ive at the price. 

Oklahoma Gas & Electric Co. first 20-year 5s, due 
( )ctober 1, 1929. Interest April and October at Harris 
Trust & Savings Bank, Chicago. Callable at 102 \U and 
interest, on and after October 1, 1914. The issue is 
secured by first mortgage on all the property of the com- 
pany, which does the entire gas and electric busine-s 
of Oklahoma City and vicinity. The earnings show a 
heavy margin of safety and the franchises extend well 
beyond the life of the bonds. At the price of 97 the 
yield is 5.25 per cent., with 17 years to run. 

Ottmnwa Railway & Light Co. first and refunding 5s, 
due January 1, 1924. Interest January and July 1 at 
Central Trust Co. of Illinois, Chicago. Callable at 103 



120 How to Invest Money Wisely 

on four weeks' notice. The bonds are well secured on all 
the property of the company/ which embraces the entire 
public utility business of Ottumwa, Iowa. A small prior 
lien of $310,000 due 1921, underlies the issue on a part 
of the property. The company itself is controlled by 
the Standard Gas & Electric Co., and the earnings are at 
present over double the interest on this issue. With only 
12 years to run, these bonds look attractive at the present 
quotation of about 90, the yield being about 6.20 per 
cent. 

Pacific Power & Light Co. first and refunding 5s, due 
August 1, 1930. Interest February and August at United 
States Mortgage & Trust Co., New York. Callable at 105 
until December 31, 1925; at 104 during 1928; at 102 
during 1929, and at 101 from January 1 to June 30, 1930. 
This company is a consolidation of public utility prop- 
erties serving about 50 communities in the States of 
Washington, Oregon and Idaho. It is controlled by the 
American Power & Light Co., which in turn is con- 
trolled by the Electric Bond & Share Co., the latter 
being controlled by General Electric interests. The fran- 
chises are all strong, and there is a good margin of 
safety in earnings, which will further increase as new 
construction work is completed. A first-class bond at 
an attractive price. At 93% the yield is about 5.55 per 
cent. 

Pensacola Electric Co. first 5s, due August 1, 1931. 
Interest February and August at Old Colony Trust Co., 
Boston. Callable at 105 on two weeks' notice. Com- 



Selected Public Utility Bonds 121 

pany controls the entire street railway and electric • light- 
ing business of the city of Pensacola, Fla., under strong 

franchises which extend beyond the life of these bonds. 

This issue is secured by first or collateral first lien on 
the entire property, and the margin of safety is ample 
to justify a good rating for the bonds. At the price of 
90 the yield is about 5.8S per cent. 

Peoria Gas & Electric Co. first 5s, due January 1, 
1923. Interest January and July at Bankers Trust I 
Xew York. Callable at 105 on 60 days' notice. Com- 
pany owns and operates gas and electric light plants in 
Peoria, 111., and vicinity, and is controlled by the Peoria 
Light Co., which in turn is controlled by the Union Kail- 
way, Gas & Electric Co. The franchises are all str- 
and as these bonds are an underlying issue, secured by 
absolute first mortgage and are protected by a wide 
equity, a strong rating is justified. At 100 the bonds 
yield the full 5 per cent. 

Portland (Me.) Electric Co. first sinking fund 5s, due 
August 1, 1926. Interest February and August 1 at 
Portland Trust Co., Portland, Me. Callable at 110 and 
interest on 5 weeks' notice. Sinking fund retires 1 per 
cent, annually of outstanding bonds. The company 
operates under strong franchises and the earnings have 
long shown a wide margin of safety. An attractive 
investment, running 14 year-. At the price of (, -'j. the 
yield is 5.15 per cent. 

Puget Sound Power Co. first 5s, due June 1. 1933. 

Interest June and December 1 at Old Colony Trust I 



122 How to Invest Money Wisely 

Boston. Callable at 110 on 60 days' notice. Sinking 
fund retires 1 per cent, of issue annually. Company is 
controlled by Seattle Electric Co., the latter being con- 
trolled by the Puget Sound Light & Traction Co., one of 
the "Stone & Webster" properties. The bonds are guar- 
anteed by the Seattle Electric Co., and are in a strong 
investment position. At 99 the yield is about 5.08 per 
cent. 

Southern Power Co, first 5s, due March 1, 1930. In- 
terest March and September 1 at Farmers Loan & Trust 
Co., New York. Callable at 105 on any interest date. 
Company supplies power to more than 148 mills in South 
Carolina, and also does the entire public utility business 
of Charlotte, S. C, through ownership of the Charlotte 
Electric Railway, Light & Power Company. The fran- 
chises are strong, and these bonds are protected by a 
first mortgage and a high margin of safety. At 99 the 
yield is about 5.08 per cent. 

Springfield (Mo,) Railway & Light Co, first lien sink- 
ing fund 5s, due May 1, 1926. Interest May and No- 
vember 1 at Guaranty Trust Co., New York. Callable at 
102 and interest on any interest date. This is one of the 
subsidiary companies of the Federal Light & Traction 
Co., and the bonds are secured by first lien on the entire 
public utility business of Springfield, Mo. The franchises 
extend well beyond the maturity of the bonds. At 94, 
the yield is about 5.65 per cent. 

Superior Water, Light & Power Co. first sinking fund 
4s, due May 1, 1931. Interest May and November at 



Selected Public Utility Bonds L23 

United States Mortgage & Trust Co., New York. Callable 
at 103 and interest. Company controls the public utilities 
of Superior, Wis., and an interurban line between 

Superior and Dulutli. The Franchises are strong, and the 
bonds protected by a high margin of safety, At 82 the 

yield is about 5.55 per cent. 

Tri-City Railway & Light Co, first and refunding 5s, 

due July 1, 1930. Interest January and July 1 at Central 
Trust Co., New York. Callable at 105 on any interest 
date. Bonds are a first lien on interurban railway extend- 
ing from Davenport to Muscatine, [owa, about 30 miles, 
and also subject to prior liens on all the other propert) ol 
the company, which does the public utility business of 
Davenport and vicinity. Franchises are strong, and the 
margin of safety is steadily growing. At 95 the yield is 
about 5.45 per cent. 

Trumbull Public Service Corp. first sinking fund 6s, due 
June I, 1920. Interest June and December in New York 
and Cleveland. Callable at 105 prior to June 1, 1915, 
and at 102 thereafter. Sinking fund retires 2 per cent. 
of bonds annually after June 1, 1915. Company oper 
ate- the gas, electric light and water utilities of the cities 
of Warren, Xiles, Xewton Falls and Leavittsburg, ( >hio, 
and is under the management of the Doherty ( operating 
Co. Franchises extend beyond life of bonds and the 
margin of safety is a growing one. At 98 the yield is 
.about 6.15 per cent. 

Twin States das & Electric ('<>. first and refunding 

s, due October 1, 1926. Interest April and October 



124 How to Invest Money Wisely 

1 at Knickerbocker Trust Co., New York. Company 
operates public utilities in Dover, N. H., and Brattleboro, 
Vt., and also electric light and power in various other 
towns in this vicinity. Is controlled by National Light, 
Heat & Power Co., which guarantees the bonds. A 
good margin of safety is shown, and at 92 the bonds 
yield about 5.30 per cent. 

Union Electric Light & Power Co, refunding and ex- 
tension 5s, due May 1, 1933. Interest May and Novem- 
ber 1 at Bankers Trust Co., New York. Callable at 110 
on and after May 1, 1918. Company does a large electric 
light and power business in the city of St. Louis under 
strong franchises, and is controlled by the North Ameri- 
can Co. The bonds enjoy a wide equity and a good in- 
vestment rating is justified. At 97 the yield is about 5.25 
per cent. 

United Electric Light & Power Co. first consolidated 
4}^s, due May 1, 1929. Interest May and November at 
Maryland Trust Co., Baltimore. This is one of the liens 
of the Consolidated Gas, Electric Light & Power Co. of 
Baltimore, and these bonds are in a strong investment 
position. At the price of 94 the yield is about 5 per cent. 

Utah Light & Power Co. consolidated 4s, due January 
1, 1930, interest January and July at Empire Trust Co., 
New York. Callable at 100 on any interest date. Com- 
pany controls public utilities in the cities of Salt Lake 
and Ogden, Utah, and is controlled by the Union Pacific 
Railroad Co. Franchise extends to 1955 and bonds are 



Selected Public Utility Bonds 125 

well protected, although not a first mortgage ou all the 

property. At 80 the yield is about 5. SO per cent. 

Virginia Railway & Power Co. first and refunding 5s, 
due July 1, 1934. Interest January and July 1 at Equit- 
able Trust Co., New York. Callable at 105 at any in- 
terest date. Bonds are a first lien on practically all the 
property of the company, which operates the electric 
utilities in Richmond and Petersburg, Va., and also con- 
trols various other companies, including the street rail- 
way of Norfolk and Portsmouth, Va. There is a good 
margin of safety in earnings, and at 96 the bonds yield 
about 5:30 per cent. 

Western Ohio Railway Co. first 5s, due November 1, 
1921. Interest May and November 1 in New York. 
Company is controlled by the Western ( >hio Railroad 

Co., which guarantees the bonds. On a part, the issue is 
subject to a small first mortgage, but is well protected 
by a good margin of safety. At 93 the yield is about 6.00 
per cent. 

York Railways first 5s, due December 1, 1937. In- 
terest June and December 1 at Philadelphia. Callable at 
110 on any interest date. Bonds are a fir>t lien on all 
the property of the company, consisting of over Si miles 
of street railway, with perpetual franchises, tssue en 
a good margin of safety. At 97 the yield is about 
5.20 per cent. 

This completes the list of fifty selected public utility 
bonds. Not all of these issues are of equal strength. 



126 How to Invest Money Wisely 

but all pass good investment tests, and from the list 
many selections can be made for individual investment 
or for general investment distribution. 

Recapitulation: For an investor who wishes to dis- 
tribute a portion of his capital very broadly among public 
utility issues, probably no better list could be selected. It 
will be noted that no two of these issues are tied to one 
string; all are spread broadly over the entire country; 
there is diversity of type, diversity of lien, diversity of 
management, etc. Of course, no investor should put his 
entire capital into one line like public utility bonds, but 
for one who has a substantial investment fund, about 25 
per cent, invested in this list, in equal amounts of each 
issue, would be investment intelligence of a high order. 
For such an investor, the scheme would work out as 
shown on page 127. 

In this list there are 250 bonds, 5 of each issue. The 
total cost of 250 bonds at the prices shown would be 
$231,237.50, and the average yield on the money, assum- 
ing that the bonds would be held until maturity, would 
be over 5% per cent. The total income per annum on 
the investment would be $12,175, so that, disregarding 
the appreciation to par during the life of the bonds, the 
holder would have a straight yield of over 5% P e r cent, 
on his investment. 

Of course, a smaller investor could either eliminate 
some of the issues or else buy only one or two of each. 
And even a very large investor, if he wished to concen- 
trate his holding more, could select a portion of the issues 



Selected Public Utility Bonds 



127 



Amount Title 

$5,000 Am. Tel. & teleg. col. is. 
5,000 Atchison Ry. L. & P. 5s.. 

5.000 Atlantic City El. 5s 

5.000 Burlington Ry. ft Lgt 5s 

5.000 Carol. Pr. ft Lgt 5s 

5,000 Cin. Gas Trans. 5s 

5.000 Colum. Ry. G. ft F. 5s. . 

5,000 Consumers Pr. 5s 

5.000 Danv. Ur. ft Champ. 5s.. 
5,000 F. St. Louis ft Sub. 5s... 
5.000 Fast Orego. T.. ft P. 5s... 
5,000 Ft. Smith L. ft Tr. 5s.... 

5.000 Ft. Worth P. ft L. 5s 

5,000 Helena Lt. ft Rv. 5s 

5.000 Tnd. Col. ft Fast. Tr. 5s.. 
5.000 Ironwood ft Bess. R. & L. 

5.000 Jackson L. ft T. 5s 

5.000 Jacksonv. Tr. (Fla.) 5s... 
5.000 Johnstown Pa<;s. Ry. 4s.. 
5,000 Kansas C. (Mo.) Gas 5s. 

5,000 Madison Riv. Pr. 5s 

5.000 Mich. United Rys. 5s 

5.000 Mflw. Gas Lt. 4s 

5.000 New Orleans Ry. ft L. I 1 - 
5.000 X. y. & Richmond Gas 5s 

5.000 NTorf. ft Ports. Tr. 5s 

5.000 North Tnd. Gas & El. 5s. 
5,000 Northern Texas Tr. 5s... 
5.000 N. Car. Pub. Scr. 5s. 
5,000 Nor. 111. L. ft Tr. 5s. 
.-.orm Nor. Ohio Tr. & Lt 
5,000 Okla. Gas ft El. 5s... 
5.000 Ottumwa Rv. ft T.t. 5s 
5.000 Pac. Pwr. ft Lt. 5s. . . 

5.000 Pensacola El. 5s 

5.000 Peoria Gas ft El. 
5.000 Portland (MeO El. 5s 
5.000 Pupet Sound Pr. 5s.. 

5.000 Southern Pr. 5s 

5.000 Springfield (Mo.) Rv. ft ' 
o Superior Wat. L. ft P. 4s. 
Tri-Citv Rv. ft L. 

5,000 Trumbull Pub. Ser. 6s 

5,000 Twin States Gas ft 1 

>n El. Lgt ft Pr. 5s. . 
El. Lpt. ft Pr. I 

Utah Lt ft Pr. 4s 

5.000 Yirg. Ry. & Pr. 5s 

5,000 Western Ohio Ry. 

5,000 York Railways 5s 

$250,000 



is 



Maturity 


Price 


Net Cost 


Yield 


192 o 


00} 


14,519.66 


.1 55 - 


19S5 


95 


1,750.00 


5.40 


1938 


03 


1,160.00 


5.50 


1989 


95 


o.oo 


5.40 


103S 


02 


1.100.00 




1033 


SO 


1,450.00 


5.00 


^o^^a 


01 


4.700.00 


5.45 


L98fl 


06 


4,800.00 


5.80 


10'? 3 


06 


4.S00.00 




103? 


06 


4.S00.00 


5.86 


TOO o 


07 


1,850.00 


5.28 


1936 


01 


1,550.00 


5.70 


1031 


00 


4.SOO.00 




1925 


00 


4. r '00. 00 


6.00 


1926 


02 


4,600.00 


0.00 


| 1030 


2 


4,000.00 




10'?? 


00 


1,800.00 


5.55 


103 1 


95 


1.7. ".O.OO 


5. io 


1031 


so 


4,450.00 


5.00 


1922 


OS 


4.000 00 




103 7, 


9IJ 


4.725.00 




1030 


01 


1.700.00 


5.45 


1027 


01 


1,550.00 


1.86 


103.-. 


Q 7 


4,850.00 


5.50 


1921 


06 


4.S00 00 


r..60 


1936 


ss 


4,400.00 


5.00 


1020 


00 


4.500.00 


5 oo 


1033 


101 


r.,o:,o.oo 


5.00 


1031 


00 


4.T.00.00 




1023 


95 


4,750.00 


5.66 


1989 


71 


3,700.00 


6.20 


1929 


07 


4,860.00 




1924 


00 


4,500.00 


6.20 


1030 




4.675.00 




1031 




1.. ".00.00 




1923 


100 


5.000.00 


5.00 


1020 


os* 


4.025.00 


5.18 


1033 


oo" 


4,960.00 


5.08 


1030 


00 


•i.o.-.o.oo 


5. OS 


1026 


01 


4.700 00 


5.66 


1031 


Bl 


4,100.00 




1030 


00 


0.00 




1020 


OS 


4.000.00 


fl 16 






4. On 


5 30 


1033 


07 


0.00 






01 


4.700.00 


6 oo 






4.000.00 


5. SO 


1934 


06 


4,800.00 


5 3 




03 




6.00 






4,850.00 
37.50 





128 How to Invest Money Wisely 

in $10,000 lots or even larger amounts. In any event, 
it would be found that within this list there is room for a 
wide range of diversification. 

Most of these issues have fairly good markets, but of 
course the purpose in buying bonds of this character 
should be permanent investment, and not for purposes 
of appreciation. It will be noted that due regard is given 
to the length of life of each bond, and no bond here 
suggested runs beyond 1938, while the average life of the 
list is less than 20 years. 



XV 
Railroad Preferred Stocks as Investments 

HERETOFORE we have confined our descriptions 
chiefly to bond issues. Bonds are, primarily, 
to be regarded as more exclusively in the class 
of sound investments than stocks, although this 
of course does not hold true in many individual in- 
stances. The bondholder, however, is always technically 
the "investor," or loaner of funds, while the stockholder 
is the partner. For, if one puts $1,000 into the stock of 
a railroad, such as the Atchison, Topeka & Santa Fe, 
he is, legally, going into partnership with the other 
owners of this road's capital stock, while, if he puts 
SI. 000 into a bond of the same railroad, he is simply a 
creditor of the company, and is loaning the concern, 
under certain agreed conditions, this amount of money. 
But, as in the case of bond issues, there are various 
kinds of stocks, the different provisions of which have 
the result of giving the owner more or less of a prior 
claim as against certain other stockholders. Thus we 
find that many stock i ire "preferred" as to p 

tion or interest in the enterprise. This preferenc 
sometimes limited to a prior claim on the income 
profits ; in other instances it covers also the tangible as- 



130 How to Invest Money Wisely 



sets of the corporation in the event of liquidation; and 
in still other cases it embraces also the voting power, 
preferred stockholders sometimes having a voting privi- 
lege to the exclusion of the other stockholders. There 
are other instances where the voting privilege is with- 
held from preferred shareholders in consideration of the 
preference granted for a prior division of or claim on 
income; and ordinarily they also forego a further claim 
on profits beyond the fixed amount for which they have 
preference before any dividends are paid on any other 
classes of stock. In this limitation of income the pre- 
ferred stock partakes of one of the characteristics of 
the ordinary bond. 

In fact, the varying terms in preferred stock issues of 
railroads and other corporations have a tendency to 
qualify the shareholder's position as a plain business 
partner. The preferred shareholder, while still being 
bound up as one of the owners of the enterprise, is ac- 
corded a prior claim on income or on assets, in consid- 
eration of agreeing to be content with only a fixed 
amount of the profits per year, and allowing the other 
partners to divide up the balance. He therefore holds 
a dual position, and while one of the owners of the prop- 
erty, as every shareholder is an owner, he at the same 
time holds a prior claim on the income as the loaner or 
bondholder does. 

Of course there are all kinds of preferred stocks, 
good, bad and indifferent. Some are highly speculative, 
just as many common stocks are, and some are very 
"high grade" and secure, as in the cases of many bonds. 



Railroad Preferred Stocks as Investments L3J 



For the genuine investor, who has no idea of speculating 
on the future, and who is in search of stability of both 
income and principal, the average preferred stock is of 
course to be selected rather than the common stock, even 
when all other things are equal. For example, it would 
take very little demonstration to show that Atchison pre- 
ferred, a 5 per cent stock, is more desirable for perma- 
nent investment than New York Central, which is also 
a 5 per cent stock. If one wished to speculate, then 
New York Central might be the better in the long run, 
but not otherwise. 

In order to show the varying characteristics of the 
leading preferred stocks of steam railroads, I append 
below brief descriptions of some of the important issues, 
most of which have for many years stood on a sound 
plane as permanent investments. 

Atchison, Topcka & Santa Fe Railway 5 per cent non- 
cumulative preferred. 

This issue has preference over the common stock as 
to assets, up to its par value, and also as to non-cumu- 
lative dividends not exceeding 5% per annum. No new 
mortgage or other bond or stock obligation can he cre- 
ated without the consent of "a majority of all the pre- 
ferred stock and all the common stock represented at ;i 
meeting" called to vote on such a proposition. Roth 
preferred and common stock have equal voting power. 

It will be noted that in this case, the preferred stock- 
holders have but slight protection as against the wishes 



132 How to Invest Money Wisely 

of the common stockholders in the event of questions 
like the above arising. The common stock has been 
many times increased in recent years, and is today in 
excess of $170,000,000, so that the solid vote of all the 
preferred holders against a proposition to create further 
mortgage indebtedness, would not prevent such indebt- 
edness from being created. The limit of the preferred 
stock is $131,486,000, and at the time of organization 
the common stock outstanding amounted to less than 
$103,000,000, or under 50% of the whole. But today, 
the common stockholders control the policy of the com- 
pany. The preferred stock has paid dividends regularly 
since 1900. The highest this stock has sold within the 
past decade has been 106^4 in 1909; the lowest, 78 in 
1907. 



Baltimore & Ohio Railroad 4 per cent non-cumulative 

preferred. 

This stock has preference as to assets up to its par 
value, and to 4% non-cumulative dividends. New mort- 
gages may be created by majority vote of both classes of 
stock, each issue having equal voting power. As the 
common stock is in a large majority, it will be seen 
that the preferred issue does not control the financial 
policy of the company. Dividends at the full rate have 
been paid since 1900. During the past ten years the 
stock has sold as high as 100 in 1905, and as low as 75 
in 1907. 



Railroad Preferred Stocks as Investments 133 

Chicago & North Western Railway non-cumulative 

preferred. 

The preferred issue has preference to dividends up to 

7 c c per annum, after which the common stock is en- 
titled to 7 c l ; when the common has received 7 ( ,\ . then 
the preferred has preference to 3% more; and after 
each class of stock has in any one year received !' 
dividends, then if there are any further earnings avail- 
able for dividends, each class of stock is to share alike in 
any further distribution. As the authorized amount of 
preferred is only $22,298,955, and the common much 
heavier, the financial policy of the company is in the 
hands of the latter. The preferred stock has received 
per annum since 1902, but the common has never 
received more than 7% • Since 1901 the preferred has 
sold as high as 270 in 1906, and as low as 185 in 1907. 

Chicago, St. Paul, Minneapolis c a Omaha ~ per cent 
non-cumulative preferred. 

This stock has preference to 7% non-cumulative divi- 
dends, after which the common is entitled to 7 r \ ; when 
both issues have received 7%, both stocks share alike 
in any further division of earnings. Both issues have 
equal voting power and the common stock controls. The 
full 7% dividend has been paid for many years. The 
highest price within the past ten years was 210 in 1902, 
and the lowest, 137 1 A in 1907. 



134 How to Invest Money Wisely 

Chicago, Milwaukee & St. Paul Railway 7 per cent 
non-cumulative preferred. 

The stock has preference to 7% non-cumulative divi- 
dends, after which the common is to receive 7%, all fur- 
ther dividend disbursements to be divided equally be- 
tween the two classes. Both stocks have equal voting 
power and the amount outstanding is the same. The 
stock reached the highest price of the decade in 1906 
when it sold at 218, and the lowest, 130 in 1907. 

Erie Railroad first and second preferred. 

The first preferred has first preference as to assets 
and to 4% non-cumulative dividends ; the second pre- 
ferred following, with all additional earnings going to 
the common stock. All stocks have equal voting power, 
but it is provided that no additional mortgage can be 
placed on the property, nor the amounts of preferred 
stock increased, without the vote of at least one-half of 
the two preferred stocks, and one-half of such of the 
common stock as may be represented at a meeting. Fur- 
thermore, the general voting rights are shared with the 
bondholders of the prior lien and general lien bonds ; 
each bond of a par value of $1,000 having ten votes. 
As these two bond issues aggregate over $70,000,000, 
and will ultimately aggregate much more, they practi- 
cally control the financial policy of the company joiji 
with the first preferred stock. (The Erie preferred 
stocks are in no sense "investments" at the present time, 






Railroad Preferred Stocks as Investments 135 

but they are included in this list to show their peculiar 
position in relation to other securities on the system.) 

Pittsburgh, Cincinnati. Chicago & St. Louis Railway 

preferred. 

The stock is non-cumulative and entitled to A^c per 
annum out of earnings as declared by the hoard, with 
the right, after 3% has been paid on the common, to 

pay 1% additional, making ? c /c in all. After 5% has 
been paid on both classes, then they share pro rata in 
any further distribution. Both classes have equal voting 
power, and the common, which is in the majority, con- 
trols the policy of the company. From 1902 to 1906, 
4% was paid on the preferred; since which year the rate 
has been 5%. The highest quotation since 1905 was 
116 T 4 in 1909: the lowest, 69 jA in 1907. 

Reading Company preferred stocks. 

First preferred has first preference as to 4% non- 
cumulative dividends; second preferred follows, and 
common receives all further divisible earnings. All 
classes of stock have equal voting power, but no addi- 
tional mortgage can be placed on the property, nor can 
the first preferred stock be increased without the con- 
sent of a majority of all three classes. The company 
al>o has the right, at its discretion, to convert tin- second 
*- preferred, one-half into fir^t preferred and one-half 
into common, or may retire either or both classes of pre- 



136 How to Invest Money Wisely 

ferred at par at any time. Full dividends have been paid 
on the first preferred since 1900 and on the second pre- 
ferred since 1903. The first preferred sold up to 106 
in 1909 and down to 73 in 1907. The second preferred 
to U7y 2 in 1909, and 67 in 1907. 

Rock Island Company preferred. 

This stock has preference as to assets up to its par 
value and also to non-cumulative dividends of 4% per 
annum yearly until and including 1909; 5% yearly from 
1910 to 1916; 6% yearly thereafter. The preferred 
stock can only be increased with the consent of two- 
thirds of the outstanding issues of both classes of stock, 
but as the common stock is much the larger issue, the 
preferred could be increased by full vote of the common 
combined with a majority of the preferred. In voting 
power, however, the preferred stockholders have the 
advantage, as they are entitled to elect a majority of the 
board of directors of the company. (Rock Island pre- 
ferred is not, of course, to be classed as an "investment" 
at the present time. No dividends have been paid since 
1905.) 

Seaboard Air Line Railway preferred 

Has preference as to 4% non-cumulative dividends ; 
then the common is to receive 4% ; then the preferred is 
to receive 2% additional, after which common is entitled 
to all further dividends. Both classes have equal voting 



Railroad Preferred Stocks as Investments 131 



power. Xo dividends have yet been paid on the pre- 
ferred, and it is not in the investment clas 

The above is of course a very limited list of preferred 
railroad stocks, but these selections have been made to 
show the distinct characteristics oi different issues. 
Many people purchase preferred stocks without really 
knowing to what degree they are "preferred" and as- 
sume that no qualifying factors can enter in. But as the 
above descriptions indicate, it might almost be said that 
no two preferred issues are exactly alike, and that where 
one issue is definitely entitled to a certain preference as 
to dividends or other advantage, another's preference is 
qualified to a more or less degree, or may really be 
stronger than appears on the surface. Thus a stock like 
St. Paul preferred, while having first preference to 7%, 
is entitled to share in additional dividends after the com- 
mon has received 7%. This gives St. Paul preferred a 
direct potential interest in the future growth of the prop- 
erty and of course is a factor in keeping the price of the 
stock relatively high. 



XVI 

Guaranteed Railroad Stocks as 
Investments 

A TYPE of investment issue which generally 
stands upon a high plane, but regarding which 
very little reference is made in ordinary finan- 
cial literature, are stocks whose dividends arc per- 
manently guaranteed by some railroad or other cor- 
poration. A guaranteed stock may be either common <>r 
preferred. In nearly all cases a stock carrying the guar- 
anty of some other company has been originally issued 
without such guaranty, the latter characteristic coming 
about as the result of a merger, acquisition of control. 
or other arrangement based on the lease of tin- property. 
Many companies are of course leased in other way-, 
some being guaranteed a fixed rental, which may or may 
not be sufficient to equal a stock dividend, and may cover 
only interest on bonds; other- are leased on a ba 
percentage of gi net receipts, and still others on a 

basis which involve mite guaranty of a fixed divi- 

dend. 

Below I furnish :" several of the best 

guaranteed railroad stocks, which are regularly quoted 
in the financial market- at the present time 

1. 



140 How to Invest Money Wisely 

Albany & Susquehanna R.R. Guaranteed Stock. 

Capital stock, $3,500,000; par, $100. Leased to Del. 
& Hud. Co. from. February 24, 1870, in perpetuity, rental 
being interest on bonds, and dividends on stock at rate of 
7% per annum until July, 1902, and 9% per annum 
thereafter, but courts have held that stock is entitled to 
benefit of refunding of bonds in 1906, and 3.45% extra 
is paid each year, making 12.45% in all. 



Atlanta & Charlotte Air Line Ry. Guaranteed Stock. 

Capital stock, $1,700,000; par, $100. Operated by 
Southern Ry. Co. under 99-year contract, dated April 
1, 1881, which calls for payment of interest on bonds, 
organization expenses and minimum of 5% on stock; 
dividends to be increased to 6% should earnings exceed 
$1,500,000, and to 7% should they exceed $2,500,000 in 
any one year. Dividends have been paid as follows : 
1881 to 1889, inclusive, 5% per annum; 1890, 5y 2 % ; 
1891 to March, 1901, inclusive, 6% per annum; 7% pe 
annum since. 



Beech Creek R.R. 4% Guaranteed Stock. 

Capital stock, $6,000,000; par, $50. Leased to N. Y. 
C. & Hudson R.R. for 999 years, from October 1, 1890, 
at rental of interest on bonds and 4% on stock. Divi- 
dends quarterly, January 1, at Grand Central Station, 
New York. 



Guaranteed Stocks as Investments 141 



-eland & Pittsburg R.R. Guaranteed Stocks. 

Capital stock, $11,247,593 guaranteed stock and 

$9,853,050 4[ ( guaranteed special betterment stock; par, 
$50. The special betterment stock is issuable for im- 
provements and is subordinate to the original stock as to 
dividends only. Leased for 999 years, from December 
1, 1871, to Penna. R.R. ; lease transferred to Penna. I 
April 14, 1873; rental 7 r .' on Mock, interest on boi 
sinking fund, and 510,000 for organization expenses. 



Capital stock, 87.857,600; par, $100; divided into four 
classes as follows: 8800,000 class 1; $540,400 class 2; 
8459,600 class 3; $6,057,600 class 4. Leased together 
with its proprietary, controlled, and leased lines to 

-ton X: Maine R.R. for 91 years, from April 1, 18 
lease to go to Boston & Lowell R.R. in case same termi- 
nates before 91 years have elapsed. Lessee assumed all 
the liabilities, and by agreement pays 7% on stocks as 
rental. 

Connecticut River R.R. W% Guaranteed Stock. 

Capital stock authorized, 83.o70,300; outstanding, 

1 13,000; par, $100. Leased to Boston & Maine R.R. 

for 99 from January 1. 1893, at rental of \0% 

per annum on stock, interest on bonds and $2,000 for 

organization expenses. 



142 How to Invest Money Wisely 

Erie & Pittsburg R.R. 7% Guaranteed Stocks. 

Capital stock outstanding, $2,000,000 original 7% 
guaranteed stock, and $1,469,450 (auth. $2,500,000) 
special 7% guaranteed betterment stock; par, $50. 
Leased for 999 years, from March 1, 1870, to Penna. 
R.R., and lease subsequently assigned to Penna. Co. 
Rental, interest on bonds, 7% per annum on capital 
stock, and $2,500 for organization purposes. An allow- 
ance, amounting to about 51 cents per share, for Penna. 
State tax, must be made in the net returns. 

Georgia R.R. & Banking Co. 11% Guaranteed Stock. 

Capital stock, $4,200,000; par, $100. The railroad 
was leased May 7, 1881, for 99 years, to W. M. Wadley, 
at a rental of $600,000 per annum, but in April, 1899, 
the Louisville acquired all rights under the lease and in 
July, 1899, the Atlantic Coast Line acquired a half in- 
terest. As security for the performance of the terms of 
the lease this company holds $500,000 5% bonds of the 
So. & No. Ala. R.R. and a like amount of first 4s of the 
Atlantic Coast Line R.R. of S. C. Dividends, 11% per 
annum, quarterly, January 15, at Georgia Railroad Bank, 
Augusta, Ga. This rate has been paid since 1889; prior 
to that date, rate ranged from 9% to 10%%. 

Little Miami R.R. 8% Guaranteed Stock. 

Capital stock, $4,943,100 common and $3,700,500 spe- 
cial betterment stock; par, $50. Leased for 99 years, 






Guaranteed Stocks as Investments 14:} 

from December 1, 1869, to Pitts., Cin. & St. L. Ry, mow 
P.. C, C. & St. L. Ry.), with permanent renewal, at 
rental of interest on bonds, rentals of leased lines, E 
per annum on stock, and $5,000 for maintenance of or- 
ganization. The Penna. R.R. is a party to the lease, and 
guarantees its faithful execution. Dividends quarterly, 
March 10, at 41 East 4th St., Cincinnati. From Decem- 
ber, 1899, l i < yc extra has been paid semi-annually (July 
and December) from invested surplus fund, making 
8-\> r c per annum. Dividends of 4% per annum are paid 
on the special betterment stock. 

Morris & Essex R.R. 7% Guaranteed Stock. 

Capital stock, $15,000,000; par, $50. Leased in 1868 
to Del., Lack. & West. R.R., in perpetuity, the lessee as- 
suming all liabilities and agreeing to pay interest on 
bonds and 7% on stock. The valuable terminal facilities 
in X. Y. Harbor of the D., L. & W. system are owned 
by this company. Dividends January and July, at 2b 
Exchange Place, Xew York. 

Old Colony R.R. 7% Guaranteed Stock. 

Capital stock, authorized and outstanding, $21,165,- 
125; par, $100. Leased to X. Y., X. Haven & Hartford 
R.R. for 99 years, from March 1, 1893, at rental of 7% 
per annum on stock, lessee assuming all liabilities. Divi- 
dends quarterly, January, at company's office, South 
Term. Station, Boston. 



144 How to Invest Money Wisely 

Pittsburg, Fort Wayne & Chicago Ry. ?% Guaranteed 

Stock. 

Capital stock, $44,694,600 special improvement and 
$19,714,286 general stock; par, $100. The former is 
subject to the general stock, and is issued to the Penna. 
R.R. for improvements. Leased, in perpetuity, from 
July 1, 1869, to the Penna. R.R. at rental of interest and 
sinking fund of debt, and 7% per annum on both classes 
of stock. Lease assigned to Penna. Co., lessee assum- 
ing all obligations of the lessor. 

Pittsburg, McKeesport & Youghiogheny R.R. 6% 
Guaranteed Stock. 

Capital stock authorized, $4,000,000 ; outstanding, 
$3,959,650; par, $50. Leased for 999 years to Pittsburg 
& Lake Erie R.R. from August 3, 1881, at rental of 6% 
per annum on stock, and guaranty of principal and in- 
terest on bonds, jointly by Pittsburg & Lake Erie and 
Lake Shore & Michigan Southern Cos., the guaranty 
being endorsed on both bonds and stock certificates. 
The stock guaranty contains the proviso that the holder 
shall accept par for stock on July 1, 1934. 



XVII 

Industrial Preferred Stocks as Investments 

IX an earlier chapter I made some extended reference 
to preferred stocks of railroads as investments, and 
in some detail described the varying terms of dif- 
ferent issues. I will now go into the subject of industrial 
preferred issues, which, while in many cases full} as 
ire as seasoned preferred stocks of railroad-, have 
characteristics of their own. 

Speaking broadly, industrial preferred -locks arc a 
purely modern product. Prior to 1899 there were but 
few large industrial corporations or "trusts" in exist- 
ence, and while a number of large concerns, such as the 
American Sugar Refining Company and the old Ameri- 
can Tobacco Company had been notably successful in 
showing large profits for from five to ten year-, yet even 
the best protected issues in the "industrial" field were 
avoided by careful investors, and many speculative com- 
mon stocks of railroads were given preference over them. 
Even after the consolidation period of 1898 to 1902 had 
passed, and there were dozens of industrial stocks pj 
ing large dividends and earning these dividends two or 
three times over, very few were recommended in any 

15 



146 How to Invest Money Wisely 

sense as investments, although they were actively traded 
in in the speculative stock market. 

There were good reasons for this apparent tardiness 
in recognizing investment values in industrial preferred 
stocks ten or twelve years ago. In the first place, nearly 
all the industrial trusts were capitalized on heavily in- 
flated bases; the preferred stocks usually representing 
simply the appraised values of the plants absorbed, 
and the common stocks representing merely voting 
power, "good will" and "water." And no doubt in 
many cases these appraised valuations were very high, 
and the real intrinsic worth of the properties at the start 
was in many cases less than 75 per cent of the amount 
of preferred stock outstanding. And further than this, 
all of these combinations at the start were in a purely 
experimental stage. While the promoters, in putting 
through the combinations, usually furnished estimates to 
show that the net profits would be enormously increased 
because of the consolidation, yet this fact had to be 
demonstrated before the security of the issues could be 
granted. A few years' experience showed very clearly 
that the estimates of the promoters were in most cases 
wide of the mark, and that not only was it impossible to 
increase earnings in anything like the ratios promised, 
but the great majority of "trusts" were obliged to 
promptly secure increased working capital through the 
issue of bonds or more stock. Like the railroads in the 
'70s and '80s, nearly all corporations of this type were 
on "probation," and their securities had in no sense 
become "seasoned." 



Industrial Preferred Stocks as Investments 11. 

But since that day more than a decade has gone by. 
In this stretch of time we have had a period of pro 
nounced prosperity and one of extreme trade reaction 

and depression. These companies have, in many in 
stances, gone through a panic successfully, and have 

records back oi them in earning power, management and 
general growth which has had the result oi placing many 
issues in the class of "seasoned stock investments." 

(h\ the following pages 1 list and describe -"me of the 
leading listed preferred issues in the industrial held, which, 
it seems to me, have well stood the tot of time, and 
demonstrated their investment worth. Of course, their 
period of probation has not been as long as that of the 
railroads, and the best industrial is not to be regarded 
as on as high an investment plane as the best railroad. 
But this difference is well reflected in the different mar 
ket prices of the two classes of stock. 

I have not included all good preferred issues, but only 
the leading active ones which are listed on the Xew 
York Stock Rxchange. i hav for the most part, 

confined the list to those which have been in existei 
a decade or more, and which have paid their preferred 
dividends uninterruptedly, at the full rate, during the 
entire period. 

American Smelting & Refining ;7< cumulative 

preferred. 

Outstanding issue, £50, ■: par $1< Has 

preference . sets and 7ft cumulative dividend-, all 



148 How to Invest Money Wisely 

remaining earnings going to the common. Also has full 
voting power. Full dividends have been paid in every 
year since the organization of the company in April, 
1899. Earnings for year to April 30, 1911, equaled 
13.33% on this stock, as compared with 14.09% the pre- 
vious year. Since 1906 the stock has sold as high as 
W7Y% and as low as 81 V4. There seems no reason, in 
view of the demonstrated permanent earning power, 
why the full dividends should not continue for many 
years to come. 

American Agricultural Chemical 6% cumulative 
preferred. 

Outstanding, $19,288,000; par $100. Has preference 
as to assets and 6% cumulative dividends, and also has 
full voting power. Full rate of 6% has been paid on 
preferred since 1899. Earnings applicable to preferred 
stock in recent years have been as follows: 1905, 9.3%; 
1906, 10.1%; 1907, 12%; 1908, 11.2%; 1909, 12.1%; 
1910, 13.9%. Since 1905 the stock has sold as high as 
103 and as low as 75 (in 1907). 

The equity back of this issue is very heavy, and the 
stock looks very attractive around its par value as a 
permanent investment. 

American Beet Sugar 6% non-cumulative preferred. 

Outstanding, $5,000,000; par $100. Has preference 
as to assets and 6% non-cumulative dividends ; also 
has full voting power. Full dividends have been 



Industrial Preferred Stocks as Investments 149 

paid since the organization o\ the company in March, 
1899. Earnings in recent years, applicable to preferred 
dividends have been as follows: Voir ended March 31, 
1907-8, 17.64%; 1908-9, 25.86%; 1909-10, 25.86 
1910-11, 38.75%. While this stock is non-cumulative, 
yet it seems fully worth its face value, in view of the 
smallness of the issue, and of the excellent aver; 
showing made by the company during the decade. 

America)! Car & Foundry ; ( \ non-cumulative 

preferred. 

Outstanding, $30,000,000; par $100. Has pref- 
erence as to assets and 7% non-cumulative dividends; 

also has full voting power. Full dividends have been 
paid since the organization of the company in 18 
learnings on this issue during recent years have been as 
follows: 1907-8, 29.877c; 1908-9, 9.65% ; 1909-10, 

13.63%; 1910-11, 14.11%. While the earnings in this 
type of business tend to wider fluctuations than in some 
other lines, yet the preferred stock is clearly well 
protected. 

American Sugar Refining 7% cumulative preferred. 

Outstanding, 845<>00,000; par $100. Has pr 
a- to 7% cumulative dividends; hut i- not preferred as 
to assets. Dividend- at the full rate haw been paid on 
this issue >ince the organization of the compan) 21 years 
ago. While there is no preference as to the 



150 How to Invest Money Wisely 

earning power of this concern, through good times and 
bad, is so heavy that the preferred issue should be re- 
garded as a permanent dividend payer. Even the aboli- 
tion of the tariff, while it would injure the position of 
the common stock, would not reduce earnings suffi- 
ciently to affect the preferred. In recent years, the per- 
centages earned on the preferred have been as follows: 
1907, 19.44%; 1908, 14.45%; 1909, 24.05%; 1910, 
14.18%; 1911, 31.29%. 

E. I. du Pont de Nemours Powder Co. 5% cumulative 

preferred. 

Outstanding, $16,068,801 ; par $100. Has preference 
as to assets and 5% cumulative dividends. The full rate 
of 5% has been paid on the issue since it was created in 
1903. In recent years the net earnings applicable to 
this dividend have been as follows: 1908, 26.11% ; 1909, 
36.14%; 1910, 34.42%; 1911, 36.75%. The remarkable 
earning power of this company makes this stock most 
attractive as an investment. 

General Chemical Co. 6% cumulative preferred. 

Outstanding, $12,500,000; par $100. Has preference 
as to assets and to 6% cumulative dividends. The full 
dividend has been paid in every year during the past 
decade. Earnings on the issue since 1907 have been as 
follows: 1908, 11.16%; 1909, 17.12%; 1910, 18.73%; 
1911, 18.88%. Since 1906 the stock has sold as high as 



Industrial Preferred Stocks as Investments 151 

108 and as low as S3. In view of the stability shown 
by this concern for many years, the preferred stock 
should be regarded as a most desirable investment. 

International Harvester 7% cumulative preferred. 

Outstanding, $60,000,000; par $100. Has preference 
as to assets and 7% cumulative dividends. The full 
dividend has been regularly paid ever since the creation 
of the preferred issue in 1907. Prior to that date, the 
entire stock was one class, on which 3% was paid in 
1903 and 4% from 1904 to 1906. Earnings on this pre- 
ferred issue since 1906 have been as follows : 1907, 
13.47%; 1908, 14.81%; 1909, 24.82%; 1910, 26.81%; 
1911, 25.87%?. 

National Biscuit 7% cumulative preferred. 

Outstanding, $24,804,500; par $100. Has preference 
as to assets and 7% cumulative dividends. This com- 
pany was formed in 1898, and the full rate has been paid 
on the preferred stock in every year since that date. 
Earnings on this stock in recent years have been as fol- 
lows : Year ended Jan. 1, 1908, 16.53%; 1909, 15.71%; 
1910, 16.04% : 1911, 18.62%; 1912, 18.84%. 

Pressed Steel Car 7% non-cumulative preferred. 

Outstanding, $12,500,000; par $100. Has preference 
as to assets and to 7% non-cumulative dividends. The 
full rate of 7% has been paid on this issue since the 
organization of the company in 1899. Earnings on the 



152 How to Invest Money Wisely 

stock during recent years have been as follows: 1908, 
1.24%; 1909, 14.68%; 1910, 12.55%; 1911, 7.14%. 

Railway Steel Spring 7% cumulative preferred. 

Outstanding, $13,500,000; par $100. Has preference 
as to assets and 7% cumulative dividends. The full 
rate has been paid on the issue since the organization of 
the company in 1902. In recent years, earnings on this 
stock have been as follows : 1908, 5.67% ; 1909, 12.32% ; 
1910, 13.00%; 1911, 7.22%. Since 1907 the stock has 
sold as high as 109 and as low as 72. 

United States Steel Corporation 7% cumulative preferred. 

Outstanding, $360,281,100; par $100. Has preference 
as to assets and 7% cumulative dividends. The full rate 
has been paid in every year since the organization of the 
company in 1901. Earnings on this stock in recent years 
have been as follows : 1907, 20.02% ; 1908, 12.69% ; 1909, 
21.91%; 1910, 24.26%; 1911, 14.78%. Since 1906 the 
issue has sold as high as 131, and as low as 79*4. 

Virginia Carolina Chemical 8% cumulative preferred. 

Outstanding, $20,000,000; par $100. Has preference 
as to assets and 8% cumulative dividends. The full rate 
of 8% per annum has been paid on this stock ever since 
the formation of the company over sixteen years ago. 
Earnings on the issue in recent years have been as fol- 
lows: Year ended May 31, 1908, 14.35% ; 1909, 19.06% ; 



Industrial Preferred Stocks as Investments 153 

1910, 24.205? : 1911, 12.83%. In price, the stock has 
sold, since 1906, as high as U ,); .j and as low as 75, 

While none of these stocks arc today selling near tin 

low figures of 1907, yet practically all arc far below 
highest figures which they have reached within the p 
five years. It may not be the best time for making in- 
vestments in stuck- of this general character, but it is 
certainly not the poorest time. For a man who wished 
to distribute a given sum among industrial preferred 
stocks, however, the above list would be about as good 
as could be selected, taking into consideration past rec- 
ord, demonstrated earning power, marketability, etc. 
Such an investment, distributed within the limits of this 
list, would, at recent market prices, yield the following 
net result : 

American Smelting and Ref. l^c preferred, .at 10s, yields 6. 

Amer. Agri. Chemical 6% preferred at 102^. 

American Beet Sugar 6% preferred at .' 6 Li 

Amer. Car & Foundry 7% preferred a! 115, 

Amer. Sugar Refining 7% preferred at 1l>m. 

E. I. du Pont De Xemours :/'< preferred at 

General Chemical Co. 6% preferred at I 

International Harvester Co. 7% preferred. . .at ISO, 

National Biscuit Co. 7% preferred at 1 

Preyed Steel Car 7% preferred at LO " ( 

Railway Steel Spring 7% preferred atl04, u • 

United States Steel 7% preferred at 112, 

Virginia Car. Chem. 8% preferred at 110. ' 6.909 

If a sum were invested in the above stocks in equal 
amounts, the net yield on the total would be 

6.10%. 



XVIII 

Unlisted Industrial Preferred Stocks as 
Investments 

WITH the demand which has come in within the 
past few years for a larger net return on the 
investor's money, the popularity of industrial 
preferred stocks, paving from 6 per cent to 8 per c 
has rapidly increased. Indeed, the demand for invest- 
ment issues of this type has been sufficient to absorb an 
ever-increasing number of such issues, and within the 
past two or three years we have witnessed the formation 
of many corporations of large capital whose prefer 
stocks have come upon the market. As i 1 thing, 

issues of this type are dealt in in the "outside" or curb 
market, or else are sold only by private sale, "over the 
counter." 

In this new investment field, there are many attractive 
opportunities, but at the same time the pitfalls are many, 
and it is usually an extremely dangerous tl : the 

average investor to put much money into a preferred 
industrial unless lie is intelligently advised. As in the 
case of other investment fiel >f this ' 

should undergo the various tests of stability, earning 

155 



156 How to Invest Money Wisely 

power, financial soundness, character of management, 
character of business done, etc. 

Among the issues, which, in my opinion, pass the best 
investment tests, and look attractive as permanent invest- 
ments, are the following : 

Selling 
around 

American Bank Note 6% preferred (par $50) 52 

American Chicle Co. 6% preferred (par $100) 106 

American Radiator Co. 7% preferred (par $100) 130 

American Type Founders Co. 7% preferred 100 

Borden's Condensed Milk 6% preferred 110 

H. B. Claflin Co. first preferred, 5% 90 

Childs (Restaurant) Co. preferred, 7% 110 

du Pont Powder Co. 5% preferred 93 

Eastman Kodak Co. 6% preferred 128 

May Department Stores, preferred, 7% 110 

National Candy Co. first preferred, 7% 109 

National Carbon preferred, 7% 118 

Niles, Bement, Pond Co. 6% preferred 98 

Otis Elevator Co. preferred, 6% 101 

Pierce, Butler & Pierce Mfg. Co. preferred, 7% 103 

Pratt & Whitney preferred, 6% 100 

Royal Baking Powder preferred, 6% 110 

Sears, Roebuck Co. preferred, 7% 123 

Underwood Typewriter preferred, 7% 110 

Waltham Watch preferred, 6% 110 

H. R. Worthington Co. preferred, 7% 107 

Of course all the above issues have not equal standing, 

and probably some are selling a little too high in view of 

the return on the money. But they are all backed by very 

heavy equities, and while the common stocks of many of 

these same companies have large elements of speculation 

back of them, these preferred issues all stand on sound 

bases. While not in the class of issues yielding but 4J^ 

to 5 per cent, they appear attractive as investments of 

this particular type. 






XIX 
Public Utility Preferred Stocks as Investments 

AMONG the types o\ investment stocks which yield 
something more than the average return, and 
in many cases have in addition, considerable po- 
tential value, the public utility holding company preferred 

issue takes a prominent place. Like the industrial pre- 
ferred stock, this is entirely a modern product in the in- 
vestment field, and only a limited number of issues have 

as yet become so far "seasoned" as to be classed with 
higher grade investments. 

Nevertheless, in these days, when it is so necessary for 
the average investor to get, on a part of his principal at 
least, a little better return than the high grade railroad 
stocks and bonds accord, it is certainly worth while t<> 
give careful study to this public utility field. Theref 
I have selected a number of the stocks in this class which 
seem to me to measure up to good investment to^ts, and 
I list these issues below. 

American Cities Co. 6% cumulative preferred. 

Outstanding, $20,513,700; par $100. Callable at 110 
and interest. The company i^ a holding corporation, 

( 157 l 



158 How to Invest Money Wisely 

owning the stocks of a number of operating companies 
located in Southern cities, such as New Orleans, Birming- 
ham, Little Rock, Memphis, etc. ; and succeeded the 
American Cities Railway & Light Co. in 1911. The divi- 
dend is being earned with a good margin over. 

American Gas & Electric Co. 6% cumulative preferred. 

Outstanding, $3,500,000; par $50. Controls about 
twenty gas and electric light companies operating through- 
out the United States. This company was formed in 1907 
and the preferred dividends have been paid regularly to 
date. The margin of safety above these dividends has 
always been heavy, and is steadily increasing. 

American Light & Traction Co. 6% cumulative preferred. 

Outstanding, $14,236,200; par $100. The company 
controls about a dozen operating companies located in 
different parts of the United States. Preferred dividends 
have been regularly paid since the organization of the 
company in 1901. The earnings for many years have 
been several times the amount required to meet this divi- 
dend. This is one of the very best of the public utility 
preferred issues in the market. 

Butte Electric & Pozver Co. 5% cumulative preferred. 

Outstanding, $1,000,000; par $100. This is both an 
operating and holding company, with a long record of 



Public Utility Preferred Stocks 159 

success. The preferred is a small issue, and the dividend 
has been earned several times over for many years. 



Georgia Railway & Electric Co. 5^ non-cumulati 

preferred. 

Outstanding, 52,400,000: par $100. This is both an 
operating and holding company, and controls practically 
all the public utilities of Atlanta. Ga., and vicinity. The 
preferred dividend has been regularly paid since 1903, 

and in recent years has been earned several times over. 



Illinois Traction Co. 6% cumulative preferred. 

Outstanding, $6,000,000: par $100. This is a very 
large corporation, controlling an extensive system of elec- 
tric railways and lighting companies in the State of 
Illinois. The preferred dividend i- regularly paid and is 
earned several times over. 



Laclede Gas Light Co. 5<ft cumulative preferred. 

Outstanding, S2. 500,000: par $100. This company 
controls and operates the entire gas lighting busil 
the city The preferred dividend has been 

regularlv paid for man; years, and the earning- are many 
times the amount required. 



160 How to Invest Money Wisely 

Milwaukee Electric Railway & Light 6% non-cumulative 

preferred. 

Outstanding, $4,500,000; par $100. This company 
controls practically all the street railway and lighting 
properties in and about Milwaukee, Wis. The operations 
have been very successful for many years. The company 
is itself controlled by the Milwaukee Light, Heat & 
Power Co., which is one of the subsidiary corporations of 
the North American Co. The dividend on the preferred 
stock has been regularly paid, and is earned several times 
over. 

Minneapolis General Electric Co. 6% cumulative 
preferred. 

Outstanding, $1,000,000; par $100. This is one of the 
strong "Stone & Webster" properties, and controls the 
entire lighting and power business of Minneapolis, Minn. 
The dividend on this stock has for many years been 
earned several times over. 



Pacific Gas & Electric Co. 6% cumulative preferred. 

Outstanding, $10,000,000; par $100. This is a very 
large holding company, controlling street railways, light- 
ing and power companies in central California. The 
earnings are heavily in excess of the preferred dividend 
requirement. 



Public Utility Preferred Stocks L61 

Seattle Electric Co. 6% non-cumulative preferred 

Outstanding, $7,500,000; par $100. This is one of the 
strong "Stone & Webster" properties, operating in Seat- 
tle and vicinity. The preferred dividend has been 
regularly paid, and is earned several times over. 

An investment, distributed in equal amounts among tin- 
foregoing public utility preferred issues, would work out 
as follows (prices as of May, 1912) : 



American Cities 6% preferred at SO, yields 7.50% 

American Gas & Electric 6% preferred at par, " 6.00% 

American Light & Traction 6% preferred. .. .at 1 10. " :.. l.v ; 

Butte Electric & Power 5% preferred at 80, " 6.25% 

Georgia Railway & Elec. 5% preferred at 87, " 5.75% 

Illinois Traction Co. 6% preferred at 93, " 6.45$ 

Laclede Gas Co. 6% preferred at 100, 

Milwaukee Elec. Ry. and Light 6% preferred, .at 100, " 6.00% 

Minneapolis General Elec. 6% preferred at 107, 

Pacific Gas & Electric 6% preferred at 02, " 6.52% 

Seattle Electric Co. 6% preferred at 103, " 5.83% 

The above would make quite a widely distributed in- 
vestment scheme in this particular field, as the companies 
selected are all located in different parts of the country, 
and their success is dependent to large degree on different 
influences. The net average yield on the total, if spread 
in even amounts in the above issues, would be about 
6%%. 



XX 
Short Term Investments 

THE popularity of short term notes and equipment 
trusts at the present time is due to several causes. 
With the apparent permanence of the high cost of 
living, the individual investor is not taking kindly any 
longer to the long term high grade issues which yield only 
4 per cent or thereabouts. If he has held many such for 
a long period, he probably has paid more for them than 
ruling prices and therefore does not want any more; 
especially as he has seen them recede quite steadily in 
price for the last half dozen years. Then the inves 
today finds it necessary to get a better return on his 
money. The high commodity prices and increased cost of 
living must be met, and he is trying to meet it by enlarg- 
ing his income return in some way. As for institutions, 
such as banks, trust companies, etc.. they are buying 
notes and short term bonds to keep idle funds at work. 
With loaning rates as unprofitable as they have recently 
been, the banks are finding it difficult to employ fund- 
profitably, and what is better, therefore, than short tern- 
securities, well secured, with an active market, and wit' 
but slight danger from depreciation ? 

( 16 



164 How to Invest Money Wisely 

The fact is, that nowadays short maturities are in 
most ways to be preferred to long term issues. Even 
among straight railroad bonds, it is much better to buy 
at par, or slightly under, a good 4 per cent bond running 
ten years or less than one running fifty or one hundred 
years. Even in a period of tight money there is little 
chance of a good bond materially depreciating if its prin- 
cipal is to be met in a few years, while a fifty year bond 
might depreciate ten points, just as we have seen them 
do since 1902. If the proper selection can be made there 
is little more attractive than issues of shorter terms. 

Aside from regular mortgage bonds which happen to 
mature early, there are two classes of very desirable 
short term investments. One of these is the straight 
short term note, sometimes secured by collateral and 
sometimes not, and the other the equipment trust bond. 
The latter security is often most attractive. An equip- 
ment bond is always secured on the actual equipment 
itself, and usually matures serially ; that is, a certain pro- 
portion of the principal falls due every year, the pay- 
ments usually being spread over ten or fifteen years. 
Thus, when the equipment covered has worn out or de- 
preciated to an extent to be regarded as inefficient, the 
bonds secured on it are all paid off, both principal and 
interest. 

I list below a number of short term notes and equip- 
ment issues, which it seems to me are all perfectly secure, 
and quite desirable as short term investments for either 
institutions or individuals. 



Short Term Investments 165 

Good Short Term Notes, 

Some of the notes listed below have no collateral back 
of them, but the properties are all substantial earners 
and in all cases the notes are protected by good safety 
margins. It will be noted that none extend beyond 1918, 
and in all cases the yield is very substantial. One of 
the advantages in investing in this type of issue is that a 
holder can usually market his notes without loss of 
principal, and even in the few cases where he cannot do 
this, he is protected by the very short maturity. 



Name — Per Cent 

American Locomotive Co 5 

Baltimore & Ohio 4 l / 2 

Bethlehem Steel Corp 6 

Brooklyn Rapid Transit 5 

Ches. & Ohio R.R 4]/ 2 

Chicago Elevated Rys 5 

Cin., Ham. & Day. Ry 4 

Denver Gas & Elec 6 

Empire District Elec. Co 6 

Erie R.R 6 

Erie R.R 5 

General Motors Co 6 

Gen. Rubber Co 4 l / 2 

Hudson Companies 6 

Illinois Central R.R V/ 2 

Miss., Kan. & Tex 5 

X. Y. C Railroad Co V/ 2 

St. L. & S. F. R.R 5 

St. L. & S. F. R.R. Co 5 

Southern Ry. Co 5 

Westinghouse Elec. & Mfg 6 

(The prices are those of Oct !•"'. I91t.) 





Approx. 


Due 


yield 


July 


L915- 


17 5.00 


June 


1913 


4.70 


Nov. 


1914 


5.55 


Julv 


1918 


5.60 


June 


1914 


4.95 


July 


1914 


6.10 


July 


191:5 


4.85 


April 


1914 


6.00 


May 


1914 


5.80 


April S 


1914 


5.75 


Oct. 


19 11 


5.20 


Oct. 


i9i:» 


6.25 


July 


1915 


6.60 


Feb. 


1915 


6.26 


July 


1914 


4.65 


May 


1913 


6.25 


Mar. 


1914 


4.75 


Mar. 19 


L913 


r.nn 


June 


1913 


6.00 


Feb. 


1913 


L.65 


Aug. 


1913 


5.05 



166 How to Invest Money Wisely 

Good Equipment Issues. 

The following list includes only a few of the standard 
equipment issues which are desirable for short term in- 
vestment. Nearly all, it will be noted, mature serially 
during the next five or six years : 

Name— Maturity Per Cent 

Atlantic Coast Line 1912-1917 

Bait. & Ohio car trust 1913-1922 

Buff., Roch. & Pittsburg 1919-1927 

Central of Georgia Ry 1912-1917 

Central R. R. of N. J 1912-1917 

Chesapeake & Ohio 1912-1917 

Chicago & Alton 1912-1917 

Chicago & Eastern Illinois 1912-1917 

Chi., R. I. & P. Ry 1912-1917 

Cin., Ham. & Dayton 1912-1919 

Delaware & Hudson -1922 

Erie 1912-1917 

Hocking Valley 1912-1918 

Hudson & Manhattan 1912-1919 

Kan. City, Ft. Scott & Mem 1912-1915 

Kansas City Southern 1912-1915 

Lehigh Valley Railroad 1912-1916 

Missouri Pacific 1912-1917 

Mobile & Ohio 1912-1916 

N. Y. Central Lines 1912-1922 

Norfolk & Western 1912-1916 

Pennsylvania 1912-1917 

St. Louis & San Fran 1912-1917 

Seaboard Air Line 1912-1917 

Southern Railway 1912-1921 

Virginian Railway 1912-1917 



4 


V/2 


i-iyi 


4^-5 


4 


4 


4-4^-5 


4^4-5 


4^-5 


4^-5 


4^ 


4-4^-5 


4-4^ 


5 


4y 2 


4^ 


4-4^ 


5 


4-6 


5 


4 


3J4-4 


4-4>4-5 


4^-5 


2 y 2 -4r4y 2 


5 






XXI 
Investing in Convertible Bonds 

WITHIX the past decade the "convertible" bond 
has become increasingly popular among inves- 
tors of all classes. Its popularity is undoubt- 
edly largely due to the fact that it is an ingenious 
combination of investment and speculation. When a bond 
of this character is issued by a corporation of strong earn- 
ing power and the issue itself enjoys a good margin of 
safety, the investor is justified in feeling quite secure as 
to his interest and the payment of his principal. It is 
true that most convertible issues are either debentures or 
junior mortgages, but in all cases they have greater 
equity back of them than have the stocks into which they 
are usually convertible, and these stocks are themselves 
usually dividend payers, with the protection of a sub- 
stantial earning power. 

For we find that but few convertible bond issues have 
been created by corporations whose stocks are not paying 
dividends. And this is quite natural. The only reason 
why the railroad or other corporation issues a convertible 
security is because it is apt to find a better market, and 
it finds a better market because people who seldom if 
ever buy bonds, but confine their investments chiefly to 

(167 ) 



168 How to Invest Money Wisely 

stocks, will buy the convertible bond to get the benefit of 
the potential possibilities of the future. Thus, where a 
corporation under ordinary conditions could not sell a 
4 per cent mortgage bond for more than 90, it can sell a 
4 per cent bond convertible into a 5 per cent or 6 per cent 
dividend paying stock, at par without any trouble. 

For the investor who does not care to purchase stocks, 
but wishes to confine himself exclusively to bonds, the 
convertible bond issue is sometimes the ideal thing to 
buy. Nowadays there are in existence such a large 
number of convertible issues, that a pretty comprehen- 
sive scheme of investment distribution can be carried out 
within the limits of this single type of security. Of 
course, convertible issues frequently sell at very high 
prices as compared to what the bond would sell at as a 
straight mortgage, and there are times when it would be 
foolish for people to put much money into many of 
these issues. At the same time, it is often quite desir- 
able to pay a moderate premium for a convertible bond in 
order to secure the potential interest in the future growth 
of earnings in the company. Those who, a few years 
ago, bought Norfolk & Western convertible 4s at 92, 
have fared very well. At that time the stock was paying 
4 per cent dividends and selling at 88, but now 6 per cent 
is paid on the stock and it sells at 117. Of course, the 
bondholder has had full opportunity to exchange into 
the stock and get a 6 per cent return ; but even if he still 
holds his bond, he has a market for it which follows 
the stock, and will continue to do so as long as the con- 
vertible clause holds. 






Investing in Convertible Bonds 169 



Convertible bonds have been issued in recent years, not 
only by the railroads, but also by many public utility 
and industrial companies. I append below a list of the 
most important issues, with a brief explanation of the 
terms, in each case, for the convertibility of the issue. 

Albany & Susquehanna Railroad first mortgage con- 
vertible i l / 2 s\ due April 1, 1946. Convertible at par at 
any time prior to April 1, 1916, into stock of Delaware 
& Hudson Co. at 200; that is, 5 shares of stock ($500) 
par for each $1,000 bond. 

American Agricultural Chemical Co. first mortgage 
convertible 5s; due October 1, 1928. Convertible at 
any time, into cumulative 6 per cent preferred stock at 
par; that is, 10 shares of stock ($1,000 par) for each 
SI, 000 bond. 

American Telephone & Telegraph Co. convertible 
debenture 4s; due March 1, 1936. Redeemable on March 
1, 1915, or on any interest date thereafter, on 12 weeks' 
notice, at 105 and interest. Convertible until March 1, 
1918, at par into stock at 133.7374, with accrued interest 
and dividends adjusted; that is, a $1,000 bond would 
receive the equivalent of $747.70 in par value of stock 
(the stock would have to sell at 133.734 to give an exact 
equivalent of one bond). 

Atchison, Topeka & Santa Fe Railz^ay convertible 
debenture 5s; due June 1, 1917. Convertible into com- 
mon stock at par at any time prior to June 1, 1910. 



170 How to Invest Money Wisely 

Atchison, Topeka & Santa Fe Railway convertible 
debenture 4s (old issue) ; due June 1, 1955. Convertible 
into common stock at par at any time prior to June 1, 
1918. Redeemable at five months' notice at 110 and 
interest. 

Atchison, Topeka & Santa Fe Railway convertible 
debenture 4s; dated 1909; due June 1, 1955. Convertible 
into common stock at par at any time prior to June 1, 
1918, but not thereafter. 

Atchison, Topeka & Santa Fe Railway convertible 
debenture 4s; dated 1910; due June 1, 1960. Convertible 
into common stock at par from June 1, 1913, to June 1, 
1923, but not thereafter. 

Atlantic Coast Line Railroad convertible debenture 4s; 
due November 1, 1939. Redeemable after May 1, 1916, 
at 105, and convertible into common stock at $135 per 
share up to January 1, 1920; that is, it requires $135 in 
par value of bonds to receive $100 in par value of stock. 

Brooklyn Rapid Transit Co. first refunding convertible 
4s; due July 1, 2002. Redeemable at 110 and interest. 
Convertible into stock at par prior to July 1, 1914, unless 
the bond is endorsed with the words, "Convertibility of 
this bond is waived by the holder." 

Chesapeake & Ohio Railway convertible 4^s; dated 
1910; due February 1, 1930. Redeemable after 1915 at 
1021/2- Convertible into stock at par between May 1, 
1911, and February 1, 1920. 






Investing in Convertible Bonds 1 i 1 

Chicago, Milwaukee & St. Paul Railway convertible 

debenture 4 T js; clue June 1. 1932, Convertible into 

common stock from June 1, 1917, to June 1, l c) 22. at the 
option of the holders. 

Erie Railroad convertible mortgage Series A 4s : due 
April 1, 1953. Convertible at any time prior to April 
15, 1912, into common stock at 50; that is, for each 

$1,000 bond, $2,000 in par value of stock will be given. 

Erie Railroad convertible mortgage Series B 4< ; due 
April 1, 1953. Convertible at any time prior to October 
1, 1917, into common stock at 60; that is. for each $1,000 
bond, $1,666.66 in par value of stock will be given. 

International Paper Company consol. mortgage con- 
vertible 5s; due January 1, 1935. Convertible into pre- 
ferred stock at par on any interest date prior to January 
1, 1917. 

New York, New Haven & Hartford Railroad con- 
vertible debenture 3 T / 2 s; due January 1, 1956. Convertible 
into stock at 150, between January 1, 1911, and January 
1, 1916; that is, $300 in par value of bonds is convertible 
into two shares of stock. 

New York, New Haven & Hartford Railroad con- 
vertible debenture 6s; due January 15, 1948. Convertible 
into stock at par from January 15, 1923, to January 15, 
1948. 

Xorfolk & Western Railway convertible debenture 4s 
of 1907; due June 1, 1932. Redeemable at 105 and in- 



172 How to Invest Money Wisely 

terest at option of company. Convertible into common 
stock at par at any time prior to June 1, 1917. 

Norfolk & Western Railway convertible debenture 4s 
of 1912; due September 1, 1932. Convertible into 
common stock at par at any time prior to September 1, 
1922. Redeemable at 105 after the latter date. 

Pennsylvania Railroad convertible debenture 3%s ; due 
October 1, 1915. Convertible into stock at $75 (par 
value $50) per share; equivalent to 150 as quoted on 
New York Stock Exchange. 

Southern Pacific Company convertible debenture 4s ; 
due June 1, 1929. Redeemable at option of the com- 
pany on and after March 1, 1914, at 105 and interest. 
Convertible at any time prior to June 1, 1919, into 
common stock at 130; that is, it takes $130 in par value 
of bonds to receive one share of stock of the par value 
of $100. 

Union Pacific Railroad convertible debenture 4s; due 
July 1, 1927. Redeemable on and after July 1, 1912, 
at 1023^2 and interest. Convertible at any time prior to 
July 1, 1917, into common stock at 175; that is, it takes 
$175 in par value of bonds to secure one share of stock 
of the par value of $100. 

In this list, which includes only the most important 
issues of convertibles, we have railroads, public utilities 
and industrials represented. An investor in this field, 
with a fair amount of capital, could spread his risk 



Investing in Convertible Bonds 173 

throughout the entire United States, just as he might 
do with the stocks themselves, and would have an interest 
in the future growth of all the properties represented. 
If, for example, a railroad system like the Southern 
Pacific should, during the next ten years, largely increase 
its dividend, and consequently the value of its stock, he 
would share in such growth through the appreciation in 
the value of his bond. On the other hand, should the 
road experience a severe setback and cut its dividend, 
the bonds would still be good and sell at a price which 
reflected the general credit of the company. 



ALPHABETICAL- INDEX 



PAGES 

Adams Express Co. coll. 4s, due 1948 100 

Albany & Susquehanna guaranteed stock 140 

Atlanta & Charlotte Air Line stock 141 

American Agricultural Chem. preferred stock 148 

American Agricultural Chem. 5s of 1928 101 

American Beet Sugar preferred stock 148 

American Car & Foundry preferred stock 149 

American Cities Co. preferred stock 157 

American Cotton Oil 5s of 1931 101 

American Gas & Electric preferred stock 158 

American Light & Traction preferred stock 158 

American Telephone & Telegraph coll. 4s of 1929 Ill 

American Smelting & Refining preferred stock 147 

American Sugar Refining preferred stock 149 

American Writing Paper 5s of 1919 101 

Application of Sound Principles 43 

Applying Investment Principles 33 

Armour & Co. Real Estate 4^s of 1939 101 

Atchison Railway Light & Power first 5s Ill 

Atchison, Topeka & Santa Fe preferred stock 131 

Atlantic City Electric Co. 5s of 1938 Ill 

Baltimore & Ohio preferred stock 132 

Beech Creek guaranteed stock 140 

Bethlehem Steel Co. 5s of 1926 102 

Burlington Railway & Light Co. 5s of 1932 Ill 

Butte Electric & Power Co. preferred stock 158 

Carolina Power & Light first 5s of 1938 Ill 

Central Leather Co. 5s of 1925 102 

Chicago, Milwaukee & St. Paul preferred stock 134 

Chicago & North Western preferred stock 133 

Chicago, St. Paul, Minneapolis & Omaha preferred stock. . . 133 

Cincinnati Gas Transportation 5s of 1933 112 

Classifying Investments 34 

Cleveland & Pittsburg R. R. guaranteed stock 141 

Colorado Fuel & Iron Co. general 5s of 1940 102 

Columbia Railway Gas & Electric 5s of 1936 112 

Concord & Montreal R. R. guaranteed stock 141 

Connecticut River Railroad guaranteed stock 141 

Consumers Power Co. 5s of 1934 103 

Convertible Bonds as Investments 167 

(174) 






Alphabetical Index 175 



PAGES 

Danville, Urbana & Champlain Railroad 5s of 1923 113 

Distribution and Profit Combined :;> 

Diversifying Investments 

Eastern Oregon Light & Power 5s of 1929 U3 

East St. Louis & Suburban coll. 5s of 1932 1 1 , 

E. I. du Pont de Nemours Powder Co. 4%s oi L936 l<> ; 

E. I. du Pont de Nemours Powder Co. preferred st.vk.... L50 

Erie & Pittsburg guaranteed stock 142 

Erie Railroad first and second preferred stocks 

Equipment Trusts as Investments 1 66 

Examples 50, 51, 53, 70, 77. 82, 83, 84, 127 

Factor of Maturity in Bonds 49 

Fort Smith Light" & Traction 5s of 1936 ill 

Fort Worth Power & Light 5s of 1931 114 

Georgia Railroad & Banking Co. guaranteed stock 142 

Georgia Railway & Electric preferred stock L59 

General Chemical Co. preferred stock 150 

Government Issues as Investments 88, 89 

Groups of Investments 34, 

Guaranteed Railroad Stocks as Investments 139 

Helena Light & Railway 5s of 1925 114 

Illinois Traction Co. preferred stock 

Indianapolis, Columbus & Eastern Traction 5s of 1926.... 114 

Industrial Bonds as Investments 88, 90, 92, 

Industrial Preferred Stocks as Investments 145 

Industrial Stocks 88, 90, 

International Harvester preferred stock 1 ">1 

International Nickel Co. 5s of 1932 103 

International Paper Co. 5s of 1935 103 

International Steam Pump Co. 5s of 1929 104 

Investment Cycles 67 

Investment of Moderate Sums s 1 

Investing for Profit 57 

Ironwood & Bessemer Railway & Light 5s of 1936 116 

Jackson (Miss.) Light & Traction 5s of 1932 115 

Jacksonville ( Fla. ) Traction 5s of 1931 11". 

Johnstown Passenger Street Railway 4s of 1931 116 

Kansas City (Mo.) Gas Co. 5s of 1922 L16 

Lackawanna Steel & Iron conv. 5s of 1923 104 

Laclede Gas Co. preferred stock 



176 Alphabetical Index 

PAGES 

Lake Shore & Michigan Southern 3%s, Action of 13 

Larger Sums, Plans for Investment of 87, 88, 92 

Little Miami Railroad guaranteed stock 142 

Maturity, Factor of, in Bonds 49 

Michigan United Railways 5s of 1936 116 

Milwaukee Electric Ry. & Light preferred stock 160 

Milwaukee Gas Light Co. 4s of 1927 116 

Minneapolis General Electric preferred stock 160 

Mistaken Investment Methods 17 

Madison River Power first 5s of 1935 116 

Moderate Sums, Plans for Investment of 81, 82, 83, 84 

Morris & Co. first 4%s of 1939 104 

Morris & Essex guaranteed stock 143 

National Biscuit preferred stock 151 

National Enameling & Stamping ref. 5s of 1929 105 

National Tube Co. first 5s of 1952 105 

New Orleans Railway & Light 4%s of 1935 117 

New York City 4s, Action of 13 

New York & Richmond Gas 5s of 1921 117 

Norfolk & Portsmouth Traction 5s of 1936 117 

North Carolina Public Service 5s of 1934 118 

Northern Illinois Light & Traction 5s of 1923 118 

Northern Indiana Gas & Electric 5s of 1929 117 

Northern Ohio Traction & Light 5s of 1933 119 

Northern Texas Traction 5s of 1933 118 

Oklahoma Gas & Electric Co. 5s of 1929 119 

Old Colony Railroad guaranteed stock 143 

Otis Elevator conv. 5s of 1920 105 

Ottumwa Railway & Light 5s of 1924 119 

Pacific Power & Light ref. 5s of 1930 120 

Pensacola Electric Co. 5s of 1931 120 

Peoria Gas & Electric Co. 5s of 1923 121 

Pittsburg, Cin., Chic. & St. Louis preferred stock 135 

Pittsburg, Fort Wayne & Chicago guaranteed stock 144 

Pittsburg, McKeesport & Yough. guaranteed stock 144 

Plans for Investment of Larger Sums 87 

Plans for Investment of Moderate Sums 81, 82, 83, 84 

Portland Electric Co. 5s of 1926 121 

Potential Possibilities, Taking Advantage of 59 

Primary Factor Affecting Prices 27 

Profit, Distribution and Combined 75 

Proper Principles for Diversifying Investments 25 



Alphabetical Index 1' 



PAGES 

Public Utility Bonds 55. 00. 109 

Public Utility Securities as a Class 37 

Public Utility Stocks as Investments 157 

Railroad Bonds 53. B8, ^9 

Railroad Preferred Stocks as Investments 88, B9, 129 

Railway Steel Spring preferred stock 

Railway Steel Spring bonds ii)r> 

Representative Railroad common stocks 

Republic Iron & Steel 5s of 1940 106 

Rights g3 

Reading first and second preferred 135 

Rock Island preferred ] 36 

Seaboard Air Line preferred stock L36 

Seattle Electric Co. preferred stock L61 

Selection of Investments 11 

Selecting Public Utility Bonds L09 

Short Term Notes 1 63, 1 65 

Southern Power Co. 5s of 1930 122 

Special Benefits Received L63 

Springfield (Mo.) Railways & Light 5s of 1926 122 

Superior Water, Light & Power 5s of 1931 L22 

Taking Advantage of Potential Possibilities 59 

Tri-City Railway & Light 5s of 1930 L23 

Trumbull Public Service Corp. 6s of 1920 L23 

Twin-States Gas & Electric 4%s of 1926 

Typical Industrial Bonds 

Union Bag & Paper Co. first 5s of 1930 107 

Union Electric Light & Power 5s of 1933 124 

United Electric Light & Power 4Y2S of 1929 124 

United States Realty & Imp. 5s of 1924 107 

United States Steel preferred stock 152 

United States Steel sinking fund 5s of 1963 107 

Lnlisted Industrial preferred stocks 

L nsound Theories 21 

Utah Light & Power 4s of 1930 124 

Virginia-Carolina Chemical first 5s of 1923 108 

Virginia-Carolina Chemical preferred stock [52 

Virginia Railwav & Power 5s of 1934 125 

Victor Fuel Co. first 5s of 1953 109 

Western Ohio Railways Co. 5s of 1921 

York Railways Co. 5s of 1937 



INVESTMENT 
P ROTECTION 

The Investor, Banker, Bank Officer 
riS? anCe anc j Trustee realizes every day the 
Q . P importance of expert study of the 

primary factors which affect secu- 
rity values in a far more important degree than he 
who simply takes a "flyer in stocks." The latter 
class generally get little for their pains, but the real 
investor deserves something more tangible than 
"bitter experience;" the Bank Officer or Trustee 
finds it his duty to keep himself properly informed 
— if for no other reason, as a protection to those 
who have trusted to his judgment. 

It is a well-demonstrated fact that more money 
is lost through "investment" than in the ordinary 
fields of what is known as "speculation." And the 
bulk of this investment loss is incurred because in- 
vestors fail to properly inform themselves of the 
real basic factors back of their investments. A few 
years ago the bonds and preferred stock of the 
Buffalo & Susquehanna Railroad were sold widely 
among banking institutions and investors in all parts 
of the Eastern States; the Allis-Chalmers first 
mortgage 5s and preferred stock were offered as 
high-grade investments by prominent houses; the 
Pere Marquette, Chicago Great Western, Western 
Pacific and Denver & Rio Grande bond issues were 
aggressively advertised as strong securities ; the 



Wabash refunding 4s were everywhere distributed 
as bonds of great prospective value. To-day many 
of these issues are either in default or have under- 
gone heavy depreciation. And yet, an impartial 
analysis of the factors back of all of them long ago 
disclosed the fact that they were "speculations" and 
not investments. 

On the other hand, many bonds and dividend- 
paying stocks which sold at relatively low prices a 
short time ago have risen in value and investment 
strength to a marked degree. For instance, Can- 
adian Pacific stock has risen in the last five years 
to a level which the ordinary investor would not 
have dreamed of in 1906. This has not been due 
to speculative causes merely, for an analysis of the 
Canadian Pacific finances and property five years 
ago would have clearly demonstrated that the asset 
value of the stock would vastly increase in the 
future years. A study of the property assets back 
of the United States Steel Corporation sinking fund 
5s in 1904, when they were selling at 80, would 
have clearly shown that they were intrinsically 
worth at least their par value. An unbiased analy- 
sis of the values back of the Standard Oil and 
American Tobacco issues at the time of dissolution, 
clearly indicated that the earning capacity of the 
companies was far greater than was then reflected 
in the prices of the stocks. And so on, ad infinitum. 

But further than this, a careful analysis of pri- 
mary factors is also of the greatest importance to 
those investors who confine their purchases entirely 



to what are known as "high-grade, seasoned invest- 
ments/' In 1901 Lake Shore & Michigan Southern 
first 3^2S were in this class and sold at 110; they 
are still in this class, but sell below 88 ; St. Paul first 
4s sold at 115 in 1902; to-day they sell below par; 
Chicago & Northwestern 3^s sold at 106j/2 in 
1902; they are now quoted at 84; even high-grade 
municipal issues are nowadays ranging from ten to 
fifteen per cent, below the prices of a decade ago. 
Thus the investor who has confined his selections 
in the last decade to the highest grade bonds is in 
many cases worse off than he who has bought issues 
of far lower grade. 

Instances similar to the above could be cited al- 
most indefinitely, but enough has been said to show 
the vital importance to all, whether as Investor, 
Banker, Trustee or Bank Officer, of going below the 
surface in studying values as well as studying the 
general factors which bring about changes in the 
general price level of investments from year to year. 

In fact, there are just two broad general fields 
of study which are absolutely indispensable for the 
investor. First, the study of the general funda- 
mentals which bring about periods of inflation and 
depression ; affect the prevailing interest rate of the 
civilized world ; cause financial or industrial panics ; 
raise or lower the level of commodity prices, etc. 
Whether we are in a period of decline or improve- 
ment in business are questions which we should al- 
ways attempt to determine, but when these basic 
questions are answered to the investor's satisfaction, 



at best only half the problem has been solved. 
When most bankers and investors bought Buffalo 
& Susquehanna securities we were clearly in a 
period of prosperity, but this fact did not prevent 
them from losing their money. 

This brings us to the field of study which is, in 
ail specific cases, by far the most important. It is 
the question of selection ; and in the problem of 
selection really lies the key to investment success. 
For while every bond or stock responds in a general 
way to the broad trend of business and public 
credit, it also responds most directly to specific in- 
fluences which affect it alone. And for this reason 
"analyzing" individual securities is usually much 
more important to the average investor than mere 
"forecasting." We may "forecast" the recurring 
cycles of prosperity and depression in this country 
with fair accuracy but if we do not analyze our in- 
vestment holdings and test each individual security, 
we frequently run a great risk of seeing at least a 
part of our principal swept away. 



p . While our analytical organization 

, . is the largest of its kind, and our 

Supervision faci]ities for gat h e ring facts far 

superior to that of any other statistical organization 
in the world, Mr. Moody gives personal supervision 
to the wants of every client and does not delegate 
this important work to others. 



_ The Service embraces the follow- 

Features ing features: 

1. Weekly Review of Financial Conditions, be- 
ing a careful analysis of the events of the week 
and of the financial, industrial or political factors 
which influence the security markets; 

2. A Special Analysis (issued each week) of 
some particular property or some specific financial 
subject (send for booklet for partial list of subjects 
recently covered) ; 

3. Weekly Bond and Investment Letter, which 
analyzes recent bond offerings, suggests plans for 
proper diversification of investments, points out 
strong and weak points in different issues, etc. 

4. An Investment Valuation Record, issued once 
a month, showing the investment yield of the lead- 
ing issues, margin of safety in earnings, etc. 

5. Monthly Analysis of Business Conditions 
picturing in statistical form the progress of trade 
and industry, with full interpretation from the in- 
vestor's standpoint; 

6. A Personal Correspondence System, whereby 
all clients have the privilege of making specific in- 
quiries once a week on matters which are of par- 
ticular interest to them; 

7. A Security Record System, whereby the 
client may, if he chooses, file a confidential list of 
his holdings for the purpose of receiving regular 
advice regarding the list, with suggestions for 
change, etc. These lists are cross-indexed and filed 
for constant reference. 



The Complete Investment Service 
Terms is f urn ; s h e d for a fee of $75 per 

year which includes "Moody's Analyses of Invest- 
ments," issued annually in two volumes. This 
publication rates all the bond and stock issues in 
the country on the same plan that the mercantile 
agencies rate the credit of merchants. It is an 
invaluable reference book for any investor. With- 
out the annual the price of the Service is $60 per 
year. The Service is also supplied to temporary 
subscribers at $6 per month, without the book. The 
annuals alone sell for $25 delivered. 

As a demonstration of the scope and value of the 
work we have been doing for investors, we cite a 
single instance. A year ago a client submitted to 
us a list of bond and stock holdings amounting to 
about $200,000 on which his annual return was 
about $7,500 or less than 4%. The bulk of the 
money was concentrated in one or two classes of 
securities, and many issues, while so-called "high- 
grade'' had been steadily declining. We took his 
list in hand, suggested exchange of at least a third 
of the holdings, and worked out a plan for scientific 
distribution. To-day this total list is yielding 
$10,000 per annum : the principal is distributed over 
a broad area, the former risks are eliminated, while 
the close superintendence of the list by our office 
has relieved the investor of constant worry and 
trouble. Office of 

JOHN MOODY 

35 Nassau Street New York 



" The One Absolutely Indispensable Book" 

MOODY'S ANALYSES OF 
INVESTMENTS 

Part I. STEAM RAILROADS 

Part II. PUBLIC UTILITIES AND INDUSTRIALS 

ISSUED ANNUALLY 



Scone of They ANALYSE the annual re- 

ports of all the corporations of the 
tne oOOKS country by a method which enables 
the user of the book to ascertain at a glance the 
TRUE VALUE of all of the Bond and Stock 
issues. Bankers and Brokers frequently hire ex- 
perts at fees ranging all the way from $500 to 
$1,000 each to analyze particular corporations for 
them. This book furnishes complete analyses of all 
the important corporations in the United States, the 
figures being all brought down to the end of the 
latest fiscal year, and the subject treated in every 
case in an absolutely impartial and unbiased 
manner. 



''The book is original and unique and supplies a wart 
not heretofore covered by financial publications.' ' 

Commercial & Financial Chronicle, New York. 



This book is ot practical value not merely to one 
class in the investment field, but to all. It is not 
simply a Bond Broker's or Stock Broker's text 
book, but embraces features of unusual usefulness 
to Railroad Officials, Investors, Financial Institu- 
tions and many others. It is the one absolutely 
indispensable book for the Investment Banker ; the 
Bond Dealer ; the Stock Broker ; Banks and Trust 
Companies ; Savings Banks ; Insurance Companies ; 
the Individual Investor ; the Bond Salesman ; Rail- 
road Officials. 

Phvsical ^ n t ' le ^ a ^ roa( ^ Edition the phys- 

' ical characteristics are first dealt 

with. These embrace a description 
of the location and Territory, a table showing the 
diversity of the Freight Tonnage for ten years, and 
a further table, containing a complete TEN-YEAR 
RECORD of Mileage, Equipment, Passenger and 
Freight Density, Average Revenue Train Load, 
Train-mile Earnings, and Passenger and Freight 
Rates. These items are then averaged for the ten- 
year period, and a COMPARISON made with like 
averages of four other systems operating in similar 
territory. Comments are made by the writer on 
the exhibits shown in each case, thus furnishing a 
proper and simple interpretation of the figures for 
the use of BANKERS, BROKERS and INVEST- 
ORS generally. 



The foregoing method is applied to every railroad 
system analyzed, and forms a complete ten-year 
detailed view of the changes in the property in a 
physical and operating sense. 

Income ^ Ten-year record is presented of 

the INCOME ACCOUNT of each 
road reduced to a mileage basis. 
This table covers the Gross Revenue, Maintenance 
Expenditures, Transportation and Traffic Expenses, 
Net Operating Earnings, Total Net Income, Fixed 
Charges, Margin of Safety over charges, Surplus 
Available for Dividends, amounts paid in Dividends, 
amounts spent in Improvements, etc. These items 
covering the ten-year periods are then averaged, 
and the averages compared in each case with those 
of four other similar systems. The entire exhibit 
is commented on. by the writer, its strong and weak 
points being brought out clearly in each case. 

This analysis of income accounts forms a com- 
plete ten-year view of the changes of each property 
in its earning and dividend-paying power. It gives 
just the information which the STOCKHOLDER 
or the BONDHOLDER needs, but usually finds so 
difficult to obtain. 



Caoital ^ Ten-year record is next pre- 

y sented of the BALANCE SHEETS 

r actors Q £ eac j 1 ra ilroad system, reduced to 

a mileage basis. This exhibit shows the Stocks 






and Bonds Outstanding, the amount of Rental 
Obligations (capitalized at 5%), amounts of Se- 
curities or Investments owned, the Net Capitali- 
zation of each road, and the Percentage of Net 
Income on Net Capital. A Dividend Record is also 
presented in this Table, and all figures cover the 
full period of ten years. Averages of the Ten- 
year figures are shown, and comparisons made with 
four other properties, as in the case of the other 
tables. Finally, analytical comments are made by 
the author on the entire exhibit, pointing out the 
strong or weak features on the financial side of the 
property. 

Bond ^ complete record of every rail- 

. road bond issue of each system is 

» furnished, the different issues be- 

ing listed according to their priority and general 
security. A Rating, based on the relative strength 
of each issue is then given. These ratings are 
presented on a plan similar to that employed by 
mercantile agencies in rating the credit of mer- 
chants. Thus, a very high-grade bond, such as 
Lake Shore 3y 2 s, is rated Aaa; one of lower grade, 
like Baltimore & Ohio Southwestern 3^s, is rated 
Aa ; Erie consol. 4s. are rated A ; Missouri Pacific 
refunding 5s, Ba ; while much lower grade issues, 
such as Erie convertibles, get a rating of B, and 
much more speculative bonds, with doubtful futures, 
are rated, Ca } C, D, etc. Information is given in 
each case for demonstrating how the rating is ar- 



rived at; the nature of the lien is shown, amounts 
outstanding per mile are given and it is stated in 
each case in what State, if any, the issue is legal for 
savings banks. 

This method of listing and rating is applied to 
every railroad bond issue, over 1,500 bond issues 
being rated in the book. 

Stock ^ complete record of every stock 

. issue of each system is also fur- 

atings nished, including all the guaranteed 

stocks. The different issues are listed according 
to their priority in claim on income, interest in 
equity, etc. A rating similar to that applied to the 
bond issues, is given each stock. Thus, all good 
guaranteed stocks are rated Aaa or Aa, preferred 
issues with a strong record are also rated high, 
some common stocks get the highest rating, while 
the position of the more speculative issues is shown 
by ratings running down from A to D or E. De- 
faulted bond issues, and stocks awaiting the results 
of reorganization, are of course in most cases rated 
very low. As in the bond record, information is 
given in connection with each stock, showing the 
terms of the lease, if any, or the basis of its position 
in earnings or equity. 

_ In the back of the volume a ten- 

TV Ten 
^p c *i . year record of prices of stocks and 

Year rrice bonds is presented, showing the 

& highest and lowest quotations of 

each issue in every year of the decade. No com- 



plete record of this nature has ever before been 
presented, and its extraordinary value to Bankers, 
Brokers and Investors need not be emphasized here. 

The volume covering Public Utility 
tt •?• a anc * Industrial Securities is of the 

t ^4 it same broad scope and character as 

industrial that covering Steam Railroads. 

While there are some reference 
books in existence which undertake to describe cor- 
porations in these fieids, there are none aside from 
"Moody's Analyses of Investments" which under- 
take to analyse and rate the various security issues. 
Our book, however, in addition to furnishing full 
statistical records of these companies with the 
greatest possible completeness, analyzes the operat- 
ing results, classifies the stocks and bonds, and gives 
each security a Rating, just as is done in the volume 
on Steam Railroads. 

Each part is sold separately, at SI 5.00 each, or 
combination orders are accepted for the full year's 
subscription to the two parts for $25, payable on 
delivery. Part I, covering the Steam Railroads, is 
issued in February of each year, and Part II, cov- 
ering Public Utilities and Industrials, in August of 
each vear. 



Published by the 

ANALYSES PUBLISHING CO., 

35 Nassau Street, New York City. 
Telephone, 1299 Cortlandt. 



HOW TO ANALYZE 
RAILROAD REPORTS 

By John Moody 



This attractive book, which has recently been 
issued, covers in a complete and popular way, the 
entire subject of railroad operation and finance. It 
is intended primarily for the Investor who holds 
railroad stocks or bonds, and supplies a long felt 
want for everyone who is in any way interested in 
railroad securities. 

Every stockholder receives his annual report 
from the railroad in which he has invested his 
money, but very few stockholders have the time or 
the technical knowledge to clearly analyze the 
meaning of the figures presented. This little book 
explains the principles whereby every statement and 
figure in the report can be clearly understood, and 
the significance properly judged. 

The following table of contents indicates the 
character of the book, and the scope of the subject. 





Table of Contents 




PART ONE 


Introduction : 


I. 


Preliminary Statement. 


II. 


The Railroad : Its Normal State. 


III. 


First Steps in the Analysis. 


IV. 


The Location of the Railroad. 


V. 


The Management of the Railroad. 


VI. 


The Results of the Decade. 


VII. 


Relative Values— The "Railroad-Mile." 




PART TWO 


The Physical Factors: 


VIII. 


Physical Factors in the Railroad. 


IX. 


Average Miles Operated. 


X. 


Equipment. 


XL 


Proportion of Freight to all Traffic. 


XII. 


Passenger and Freight Density. 


XIII. 


Average Freight Train Load. 


XIV. 


Train-mile Earnings. 


XV. 


Passenger and Freight Rates. 




PART THREE 


The Income Factors: 


XVI. 


Earnings and Their Distribution. 


XVII. 


The General Income Account. 


XVIII. 


The Operating Revenues. 


XIX. 


The Maintenance Accounts. 


XX. 


Transportation and Other Operating Ex- 




penses. 


XXI. 


Outside Operations. 


XXII. 


Net Operating Revenues. 



XXIII. "Other Income" and Total Net Income. 

XXIV. Fixed Charges and the Margin of Safety. 
XXV. Disposal of Surplus. 

PART FOUR 

The Capitalization Factors : 

XXVI. Assets and Liabilities of the Railroad. 
XXVII. The Balance Sheet. 
XXVIII. The Capital Assets. 
XXIX. The Capital Liabilities. 
XXX. Capitalization of Rentals. 
XXXI. Stocks and Bonds Per Mile. 
XXXII. Net Capitalization. 
XXXIII. Net Income on Net Capital. 

Appendix: Outline of Uniform Accounting 
Requirements for Operations of Steam 



Railroads, as prescribed 
Commerce Commission. 



by the Interstate 



Price, $2.00 per copy. Carriage 10c. The book 
is handsomely bound in blue flexible leather, con- 
tains 228 pages, and is of a convenient size which 
can be carried in the pocket. 



ANALYSES PUBLISHING CO. 

35 Nassau Street New York City 

Telephone 1299 Cortlandt 



DEC 13 1912 



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